GOAL OF THE SPREADSHEET

Compute portfolio return and risk

Learn how short positions affect the shape of the Portfolio Possibilities Curve
Compute the Sharpe Ratio
Find the Efficient Porfolio (the Market Portfolio)

INSTRUCTIONS
Use yellow cells to input desired values of return, volatility and correlation

INPUT DATA

Exp. Return Volatility Risk Free 1%

Efficient Porftolio = Market Portfolio -
ASSET (A) 5% 10%
ASSET (B) 3% 8% Correlation 0.2

PORTFOLIO POSSIBILITIES Note that we can leverage (short posi

W(A) W(B) E(Rp) Vol(P) Sharpe

1 -30% 130% 2.40% 10.23% 0.1368
2 -20% 120% 2.60% 9.41% 0.1701 Exp. Return
6.00%
3 -10% 110% 2.80% 8.66% 0.2080
4 0% 100% 3.00% 8.00% 0.2500
5.00%
5 10% 90% 3.20% 7.46% 0.2947
6 20% 80% 3.40% 7.08% 0.3391
7 30% 70% 3.60% 6.86% 0.3789 4.00%

8 40% 60% 3.80% 6.84% 0.4096

9 50% 50% 4.00% 7.00% 0.4286 3.00%
10 60% 40% 4.20% 7.34% 0.4358 Efficient Porftolio
11 70% 30% 4.40% 7.84% 0.4336 2.00%
12 80% 20% 4.60% 8.47% 0.4252
13 90% 10% 4.80% 9.19% 0.4133 1.00%
14 100% 0% 5.00% 10.00% 0.4000
15 110% -10% 5.20% 10.87% 0.3864 0.00%
16 120% -20% 5.40% 11.78% 0.3734 6.00% 7.00% 8.00% 9.0
17 130% -30% 5.60% 12.74% 0.3611

FORMULAS USED
fficient Porftolio = Market Portfolio ----> Maximizes Sharpe Ratio

ote that we can leverage (short positions in one asset)

Exp. Return
6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00%
Volatility (Standard Deviation)