HUL SBI Tata Steel ONGC SUN

HUL 76 35 39 34 28
SBI 35 160 133 81 40
Tata Steel 39 133 267 99 48
ONGC 34 81 99 148 31
SUN 28 40 48 31 72

Market Cap Market Weights

HUL 1.86 0.25 w=S^(-1)*(r-c)/Lambda
SBI 1.46 0.20
Tata Steel 0.32 0.04
ONGC 1.85 0.25 Assume a market
return to calculate
SUN 1.96 0.26 Lambda
SUM 7.45
Let market return be
12%

12
 E(r) Black's Model
1.14 c
3.19 HUL
3.51 SBI
3.69 Tata Steel
2.74 ONGC
SUN
Sum Weight
ret
var
Stdev

Implied Excess Return

Excess Return Return Your Views
HUL 0.73 0.73 0.70
SBI 1.29 1.29 1.48
Tata Steel 1.43 1.43 1.72 We use goal seek to change the
ONGC 1.25 1.25 1.23 monthly return to the assumed
SUN 0.73 0.73 0.77 annualized return in order to
Lambda 0.02 calculate Lambda.
ret 1
var 59.18
Stdev 7.69
 Check using Solver Maximize Sharpe Ratio
0 HUL -0.14 HUL -0.14
-0.14 SBI 0.12 SBI 0.12
0.12 Tata Steel -0.01 Tata Steel -0.01
-0.01 ONGC 0.37 ONGC 0.37
0.37 SUN 0.66 SUN 0.66
0.66 Sum Weight 1.00 Sum Weight 1.00
1.00 ret 3.35 ret 3.35
3.35 var 72.32 var 72.32
72.32 Stdev 8.50 Stdev 8.50
8.50 Sharpe Ratio 0.39

Return Views
0.72
1.36
1.55
1.24
0.75
 Pie Link Matrix (P)
Implied Excess Return
Views (Q) HUL SBI
Excess Return Return 1 1.00 -1 1
HUL 0.73 0.73 2 0.80 0 0
SBI 1.29 1.29
Tata Steel 1.43 1.43 Views are relative in this case. They may be absolute too. I
ONGC 1.25 1.25 views wil be linked to one stock only.
SUN 0.73 0.73

〖 [( 〖𝝉𝑺 ) 〗 ^(−𝟏)+𝑷
𝜴^(−𝟏)
𝑷] 〗 ^(−𝟏)
70.44 49.62 45.02
49.62 112.23 91.77
45.02 91.77 191.75
42.71 66.11 107.58
29.04 34.75 40.34
 Link Matrix (P)
First we need to make the omega matrix,
Tata Steel ONGC SUN i.e., the confidence matrix.
0 0 0
1 -1 0

They may be absolute too. In such a case, the

be linked to one stock only.
Ω=𝜏𝑃𝑆𝑃′
We do it by defining Tau. It shows your
uncertainty. If 1, then it is neutral. If we
are more certain then Tau will move
down and vice-versa. Take Tau = 1.

Tau 1

) 〗 ^(−𝟏)+𝑷^𝑻
[(𝜏𝑆)^(−1) Π+𝑃^𝑇
Ω^(−1) 𝑄]
(−𝟏) 42.71 29.04 0.00
66.11 34.75 0.01
107.58 40.34 0.00
132.24 31.67 0.00
31.67 70.89 0.00
166.86 46.72
46.72 217.66

E (R)
0.70
1.48
1.72
1.23
0.77