1. Tasks
A. Select ten stocks from different industries on ASX market. Download the monthly returns for the past five years from January 2020 to December 2024.
B. Construct an efficient multi asset portfolio of the risky assets using the selected stocks. You must provide the detailed components of your portfolio such as weights of each stock and present them in a table. (Tip: check the function "MMULT" in Excel for calculating portfolio variance.)
C. Compare the performance of your optimal risky portfolio constructed in B with an ASX index portfolio. Comment on the comparison.
D. Your client wants to limit her risk exposure to 15% (annual standard deviation of her portfolio). She does not want to engage in any borrowing or lending activities. What is your recommendation of her portfolio using the stocks you selected in A. E. Analyze the effect of adding a risk-free asset to a portfolio containing risky assets. What recommendation will you give if a risk-free asset can be invested. Assume your client still wants to limit her portfolio to have the annual standard deviation no more than 15%.
2. Report
Based on your analysis, please write a report to your client. In your report, please
1. Explain the fundamental concepts behind the optimal portfolio of risky assets. Select two stocks and draw the opportunity set of the assets. Show the optimal portfolio of the risky assets. Detailed work must be shown in your Excel file.
2. Present the optimal risky portfolio using the ten stocks you selected. Please refer the sample Excel posted on iLearn to learn how to get the optimal risky portfolio for ten stocks. The illustrated sample uses quarterly data. Your work should be based on monthly data.
3. Compare your portfolio with an index portfolio.
4. Present your adjusted optimal risky portfolio using the ten stocks if risk exposure is limited to 15% (annual).
5. Explain how the addition of a risk-free asset in a portfolio was useful for generating a higher risk adjusted return
6. Finally make your recommendation.