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In this report the deep insights
regarding the efficient portfolio are described in detail. Different Major Corporation has been selected
for the creation of portfolio. In the report the correlation matrix is also
computed. The portfolio optimization shows how an efficient portfolio can be
created through taking lowest level of risk. However it is always said that the
higher will be the risk the higher will be the level of profit. It is up to the
investor to think whether he/she wants more risk or lower amount of risk.
Portfolio are usually created to minimize the level of risk.
Constructed Portfolio
|
Provided Portfolio |
||||
|
Ticker |
Name |
Allocation |
Min. Weight |
Max. Weight |
|
FDX |
FedEx Corporation |
5.00% |
0.00% |
100.00% |
|
UPS |
United Parcel Service, Inc. |
20.00% |
0.00% |
100.00% |
|
AAPL |
Apple Inc. |
20.00% |
0.00% |
100.00% |
|
FB |
Facebook, Inc. |
5.00% |
0.00% |
100.00% |
|
TWTR |
Twitter, Inc. |
5.00% |
0.00% |
100.00% |
|
CAJ |
Canon, Inc. |
30.00% |
0.00% |
100.00% |
|
NKO.TO |
Niko Resources Ltd. |
10.00% |
0.00% |
100.00% |
|
SSNC |
SS&C Technologies Holdings, Inc. |
5.00% |
0.00% |
100.00% |
For the construction of portfolio
it has been decided to invest in 8 different companies. The corporations which
are selected for investment include Apple, Facebook, Twitter, Canon and UPS.
All the organizations that are chosen for investment are renowned and among the
largest corporations in the world. It is has been decided to allocate 20% in
Apple, 30% in Canon 20% in UPS and 5% in FedEx
Performance of Portfolio
|
Portfolio Performance |
||
|
Metric |
Provided Portfolio |
Maximum Sharpe Ratio |
|
Start Balance |
$10,000 |
$10,000 |
|
End Balance |
$11,497 |
$22,224 |
|
CAGR |
6.65% |
44.57% |
|
Expected Return |
8.51% |
48.32% |
|
Stdev |
18.82% |
23.96% |
|
Best Year |
24.30% |
45.90% |
|
Worst Year |
-16.00% |
18.26% |
|
Max. Drawdown |
-27.41% |
-21.63% |
|
Sharpe Ratio (ex-ante) |
0.38 |
1.96 |
|
Sharpe Ratio (ex-post) |
0.36 |
1.61 |
|
Sortino Ratio |
0.52 |
3.81 |
|
US Stock Market Correlation |
0.86 |
0.53 |
The above table is depicting the
performance of portfolio in the specific time period. The portfolio is providing 8.51% of return.
The standard deviation of the portfolio is 18.82%. the CAGR of the portfolio is
6.65%
Risk & Return of Portfolio
|
Risk and Return Metrics |
||
|
Metric |
Provided Portfolio |
Maximum Sharpe Ratio |
|
Arithmetic Mean (monthly) |
0.68% |
3.34% |
|
Arithmetic Mean (annualized) |
8.51% |
48.32% |
|
Geometric Mean (monthly) |
0.54% |
3.12% |
|
Geometric Mean (annualized) |
6.65% |
44.57% |
|
Volatility (monthly) |
5.43% |
6.92% |
|
Volatility (annualized) |
18.82% |
23.96% |
|
Downside Deviation (monthly) |
3.74% |
2.86% |
|
Max. Drawdown |
-27.41% |
-21.63% |
|
US Market Correlation |
0.86 |
0.53 |
|
Beta (*) |
1.29 |
1.02 |
|
Alpha (annualized) |
-8.00% |
27.23% |
|
R Squared |
73.53% |
28.53% |
|
Sharpe Ratio |
0.36 |
1.61 |
|
Sortino Ratio |
0.52 |
3.81 |
|
Treynor Ratio (%) |
5.28 |
37.79 |
|
Active Return |
-5.78% |
32.14% |
|
Tracking Error |
10.35% |
20.26% |
|
Information Ratio |
-0.56 |
1.59 |
|
Skewness |
-0.68 |
0.33 |
|
Excess Kurtosis |
1.37 |
-0.07 |
|
Historical Value-at-Risk (5%) |
-12.70% |
-7.64% |
|
Analytical Value-at-Risk (5%) |
-8.08% |
-7.82% |
|
Conditional Value-at-Risk (5%) |
-13.70% |
-7.99% |
|
Upside Capture Ratio (%) |
97.68 |
177.91 |
|
Downside Capture Ratio (%) |
141.44 |
1.34 |
|
Sustainable Withdrawal Rate |
55.00% |
76.75% |
|
Positive Periods |
15 out of 26 (57.69%) |
18 out of 26 (69.23%) |
|
Gain/Loss Ratio |
1.02 |
1.54 |
The above table is providing the
detail about the level of risk and return of the portfolio. The R square of the
portfolio is 73.53% which is showing the influence of the various factors. The
beta of portfolio is 1.29. Through analyzing the above figures it can be said
that the level of return is greater than the return
Components of Portfolio
|
Portfolio Components |
||||||||||
|
Ticker |
Name |
CAGR |
Stdev |
Best Year |
Worst Year |
Max. Drawdown |
Sharpe Ratio |
Sortino Ratio |
US Mkt Correlation |
|
|
FDX |
FedEx Corporation |
-0.41% |
27.51% |
35.22% |
-34.66% |
-37.88% |
0.08 |
0.1 |
0.77 |
|
|
UPS |
United Parcel Service, Inc. |
1.47% |
25.06% |
13.97% |
-15.48% |
-20.90% |
0.13 |
0.17 |
0.72 |
|
|
AAPL |
Apple Inc. |
22.36% |
28.24% |
48.48% |
-5.39% |
-30.46% |
0.81 |
1.37 |
0.38 |
|
|
FB |
Facebook, Inc. |
16.93% |
29.34% |
53.38% |
-25.71% |
-32.54% |
0.62 |
1.22 |
0.56 |
|
|
TWTR |
Twitter, Inc. |
34.10% |
48.12% |
47.30% |
7.10% |
-34.83% |
0.82 |
1.42 |
-0.05 |
|
|
CAJ |
Canon, Inc. |
1.08% |
16.50% |
32.91% |
-26.20% |
-31.38% |
0.06 |
0.09 |
0.54 |
|
|
NKO.TO |
Niko Resources Ltd. |
-52.42% |
89.52% |
0.00% |
-66.67% |
-81.82% |
-0.41 |
-0.62 |
0.57 |
|
|
SSNC |
SS&C Technologies Holdings, Inc. |
43.42% |
28.16% |
42.53% |
12.08% |
-23.86% |
1.38 |
3.52 |
0.65 |
|
In the above table the major
components of the portfolio are described in detail
Monthly Correlation of
Portfolio Optimization
|
Monthly Correlations |
|||||||||||
|
Ticker |
Name |
FDX |
UPS |
AAPL |
FB |
TWTR |
CAJ |
NKO.TO |
SSNC |
Provided Portfolio |
Maximum Sharpe Ratio |
|
FDX |
FedEx Corporation |
- |
0.75 |
0.18 |
0.28 |
-0.07 |
0.26 |
0.51 |
0.35 |
0.68 |
0.26 |
|
UPS |
United Parcel Service, Inc. |
0.75 |
- |
0.03 |
0.2 |
-0.36 |
0.28 |
0.48 |
0.34 |
0.63 |
0.1 |
|
AAPL |
Apple Inc. |
0.18 |
0.03 |
- |
0.42 |
0.27 |
0.26 |
0.08 |
0.36 |
0.52 |
0.47 |
|
FB |
Facebook, Inc. |
0.28 |
0.2 |
0.42 |
- |
0.38 |
0.5 |
0.02 |
0.37 |
0.5 |
0.52 |
|
TWTR |
Twitter, Inc. |
-0.07 |
-0.36 |
0.27 |
0.38 |
- |
0 |
-0.29 |
-0.01 |
0 |
0.51 |
|
CAJ |
Canon, Inc. |
0.26 |
0.28 |
0.26 |
0.5 |
0 |
- |
0.37 |
0.46 |
0.68 |
0.4 |
|
NKO.TO |
Niko Resources Ltd. |
0.51 |
0.48 |
0.08 |
0.02 |
-0.29 |
0.37 |
- |
0.41 |
0.76 |
0.21 |
|
SSNC |
SS&C Technologies Holdings, Inc. |
0.35 |
0.34 |
0.36 |
0.37 |
-0.01 |
0.46 |
0.41 |
- |
0.64 |
0.85 |
Conclusion on Portfolio Optimization
If all the above discussion is summarized than it is evident that the portfolio is providing 8.51% of return. The standard deviation of the portfolio is 18.82%. The CAGR of the portfolio is 6.65%. The R square of the portfolio is 73.53% which is showing the influence of the various factors. The beta of portfolio is 1.29. Through analyzing the above figures it can be said that the level of return is greater than the return.
Christoffersen, P. (2011). Elements of Financial
Risk Management. Academic Press.
Erickson,
K. (2014). Financial Risk Management: A Simple Introduction. K.H.
Erickson.
Melville,
A. (2017). International Financial Reporting: A Practical Guide (6 ed.).
Pearson Higher Ed.
Pandey,
I. (2015). Financial Management. Vikas Publishing House.
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