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This is complete write up of your portfolio formation in a Word file, with calculations copied and pasted in it from your Excel file.
1. Select the stocks of three publicly traded companies from different industries. State the criteria for selecting those securities.
2. Retrieve monthly data on adjusted closing prices of your securities from Yahoo Finance for the past 10 years and calculate the monthly rate of return of the stocks for every month.
3. Calculate the mean, variance, and standard deviation of the stocks’ monthly returns.
4. Calculate the correlation coefficient between every possible pair of stocks’ returns.
5. Decide what percentage of your money (weights) you want to invest in each stock and state the criteria you used to select those weights.
6. Now calculate your portfolio’s mean monthly return, variance, and standard deviation.
7. Assuming your portfolio return follows a normal distribution, calculate the chance that your portfolio loses 10% of its value during any month?
8. Assuming you have invested $100,000 in your portfolio, what is value at risk (VaR) of your portfolio at any particular month at 99% confidence level?
9. Now randomly change your portfolio’s weights 100 times (note total weights should always be 100%), for each weight combination calculate the mean and standard deviation of your portfolio, and then draw the efficient frontier.
10. For each item mentioned above explain your rationale and cite peer-reviewed and/or seminal sources.