Portfolio analysis

Month Small LT Treasuries

Cap w1 1-w1 St. Dev Mean

1 0.1126 -0.0324 1.0 0.0 0.0504 0.0188

2 0.0452 0.0051 0.9 0.1 0.0448 0.0179
3 -0.0249 -0.0094 0.8 0.2 0.0393 0.0170
4 -0.0403 0.0016 0.7 0.3 0.0339 0.0161
5 -0.0014 0.0243 0.6 0.4 0.0288 0.0152
6 -0.0519 0.0200 0.5 0.5 0.0240 0.0144
7 0.0370 0.0398 0.4 0.6 0.0198 0.0135
8 -0.0228 0.0067 0.3 0.7 0.0167 0.0126
9 0.0131 0.0185 0.2 0.8 0.0153 0.0117
10 0.0259 0.0198 0.1 0.9 0.0162 0.0108
11 0.0885 0.0010 0.0 1.0 0.0189 0.0100
12 0.0441 0.0246

Mean 0.0188 0.0100

St. Dev. 0.0504 0.0189

Corr. -0.3162

Two-asset portfolios
0.020
0.018
0.016
0.014
Mean return

0.012
0.010
0.008
0.006
0.004
0.002
0.000
0.01 0.02 0.03 0.04 0.05 0
Standard deviation
0.004
0.002
0.000
0.01 0.02 0.03 0.04 0.05 0
Standard deviation
 Column1 Column2

Mean 0.018758333 Mean 0.00996667

Standard Error 0.014550666 Standard Error 0.00545959
Median 0.0195 Median 0.0126
Mode #N/A Mode #N/A
Standard Deviation 0.050404986 Standard Deviation 0.01891259
Sample Variance 0.002540663 Sample Variance 0.00035769
Kurtosis -0.466909671 Kurtosis 1.23749115
Skewness 0.412884278 Skewness -0.79910787
Range 0.1645 Range 0.0722
Minimum -0.0519 Minimum -0.0324
Maximum 0.1126 Maximum 0.0398
Sum 0.2251 Sum 0.1196
Count 12 Count 12

Column 1 Column 2
Column 1 1
Column 2 -0.316157794 1

0.05 0.06
0.05 0.06
Three-asset portfolios with known expected return and variance-covariance matrix:

Mean, St. Dev Correlation Coefficients

Stock 1 Stock 2 Stock 3 Stock 1 Stock 2 Stock 3

Return 0.14 0.08 0.2 Stock 1 1 0.5 0.2
St. dev 0.2 0.12 0.3 Stock 2 1 0.4
Stock 3 1

Portfolio weight Portfolio Portfolio

Stock 1 Stock 2 Stock 3 St. Dev Return
0 0 1 0.3 0.2
Stocks 0 0.2 0.8 0.250567 0.176
2 and 3 0 0.4 0.6 0.204 0.152
0 0.6 0.4 0.162776 0.128
0 0.8 0.2 0.132 0.104
0 1 0 0.12 0.08
0 0 1 0.3 0.2
Stocks 0.2 0 0.8 0.251078 0.188
1 and 3 0.4 0 0.6 0.211092 0.176
0.6 0 0.4 0.185903 0.164
0.8 0 0.2 0.181769 0.152
1 0 0 0.2 0.14
0 1 0 0.12 0.08
Stocks 0.2 0.8 0 0.121062 0.092
1 and 2 0.4 0.6 0 0.131697 0.104
0.6 0.4 0 0.14988 0.116
0.8 0.2 0 0.173251 0.128
1 0 0 0.2 0.14
0.2 0.2 0.6 0.204626 0.164
Mixed 0.2 0.4 0.4 0.16356 0.14
weights 0.2 0.6 0.2 0.132966 0.116
0.4 0.2 0.4 0.171581 0.152
0.4 0.4 0.2 0.142717 0.128
0.6 0.2 0.2 0.15965 0.14
 Three-Asset Portfolio
0.25

0.2
Expected return

0.15

0.1

0.05

0
0.1 0.15 0.2 0.25 0.3 0.35
Standard deviation
0.3 0.35
A. Inputs on three stocks: mean, standard deviation, and correlation matrix

Standard Expected
Stock Deviation Return
A 0.2 0.14
B 0.12 0.08
C 0.3 0.2

A B C
St. Dev 0.2 0.12 0.3
Mean 0.14 0.08 0.2

Correlation Matrix
A B C
A 1 0.5 0.2
B 0.5 1 0.4
C 0.2 0.4 1

B. Covariance Matrix

A B C
A 0.04 0.012 0.012
B 0.012 0.0144 0.0144
C 0.012 0.0144 0.09

C. Equally-Weighted Portfolio

A B C
Weights 0.3333 0.3333 0.3333
0.3333 0.004444 0.001333 0.001333
0.3333 0.001333 0.0016 0.0016
0.3333 0.001333 0.0016 0.01
1.0000 0.0071 0.0045 0.0129
Variance 0.0246
St. Dev 0.156773
R * weight 0.046667 0.026667 0.066667
Mean 0.14

D. Minimize Portfolio Variance, Given Portfolio Mean

Use Excel Solver (under Tools) to minimize portfolio variance, subject to:
1. Portfolio weights sum to 1 (a50=1);
2. A specified portfolio mean (b54=?);
3. Optional: portfolio weights>=0

Portfolio A B C
Weight -0.7819 2.4743 -0.6924
-0.781934 0.024457 -0.023217 0.006497
2.4743 -0.023217 0.088159 -0.024669
-0.692367 0.006497 -0.024669 0.043143
1.0000 0.0077 0.0403 0.0250
Variance 0.0730
St. Dev 0.27015
R * weight -0.109471 0.197944 -0.138473
Mean -0.05

E. Unrestricted Efficient Frontier

Portfolio Weights
Mean St. Dev A B C

-0.05 0.27015 -0.781947 2.474307 -0.69236 0.3

-0.02 0.222987 -0.590264 2.128465 -0.538201
0 0.193534 -0.462475 1.897904 -0.435429 0.25
0.02 0.166665 -0.334679 1.667331 -0.332652
0.04 0.143838 -0.20689 1.43677 -0.22988
0.06 0.127245 -0.079101 1.206209 -0.127108 0.2
0.08 0.119512 0.048682 0.975659 -0.024341
0.1 0.12233 0.176471 0.745098 0.078431 0.15
0.12 0.135041 0.30426 0.514537 0.181204

Mean
0.14 0.155233 0.432049 0.283976 0.283976
0.16 0.180412 0.559838 0.053414 0.386748 0.1
0.18 0.208781 0.687627 -0.177147 0.48952
0.2 0.239208 0.815416 -0.407708 0.592292 0.05
0.22 0.271 0.943205 -0.638269 0.695064
0.25 0.320358 1.134895 -0.984122 0.849228
0
F. Restricted Efficient Frontier (No short sales) 0.1 0.15 0.2
-0.05
Portfolio Weights
Mean St. Dev A B C
-0.1
0.08 0.12 5.43E-07 0.999999 0
0.09 0.119583 0.112566 0.860384 0.02705 St. dev
0.1 0.12233 0.176471 0.745098 0.078431
0.11 0.12758 0.240365 0.629817 0.129817
0.12 0.135041 0.30426 0.514537 0.181204
0.13 0.144371 0.368154 0.399256 0.23259
0.14 0.155233 0.432049 0.283976 0.283976
0.15 0.16733 0.495943 0.168695 0.335362
0.16 0.180412 0.559838 0.053414 0.386748
0.17 0.196214 0.5 0 0.5
0.18 0.223109 0.333333 0 0.666667
0.19 0.258736 0.166667 0 0.833333
0.2 0.3 0 0 1
 Unrestricted
Restricted
Stocks

.15 0.2 0.25 0.3 0.35

St. dev
Portfolio Optimization: Three Risky Assets
One plus Minimum Variance Frontier (3 risky
Inputs Expected Standard Exp Ret
Return Deviation [1+E(r)] Ones 0.25
Riskless Rate (r) 0.04 0 1.04 1
Risky Asset 1 0.14 0.2 1.14 1
0.2
Risky Asset 2 0.08 0.12 1.08 1
Risky Asset 3 0.2 0.3 1.2 1

Expected Return
0.15
Correlations
1 2 3
1 1 0.5 0.2 0.1
2 0.5 1 0.4
3 0.2 0.4 1 0.05

Standard Deviations
1 2 3 0
0.2 0.12 0.3 -0.05 0.15
-0.05
Variance and Covariance Matrix
1 2 3 Standard Devia
1 0.04 0.012 0.012
2 0.012 0.0144 0.0144
3 0.012 0.0144 0.09

Outputs
A 70.37037
B 76.33333
C 83.11048 Efficient Efficient
Delta 21.73721 Frontier Trade-off Individual
Gamma 0.317647 Curve Line Asset Optimal Combination
Standard Expected Expected Expected of Risky Assets
Index Deviation Return Return Return (Tangent Portfolio)
Risky Asset 1 0.2 0.14 1 0.705882
Risky Asset 2 0.12 0.08 2 -0.210084
Risky Asset 3 0.3 0.2 3 0.504202
Trade-off Curve 0 0.25 -0.037396
1 0.230922 -0.025183
2 0.212405 -0.01297
3 0.194608 -0.000756
4 0.177749 0.011457
5 0.16212 0.02367
6 0.148111 0.035884
7 0.136223 0.048097
8 0.127052 0.06031
9 0.121216 0.072524
10 0.119208 0.084737
 11 0.121216 0.09695
12 0.127052 0.109163
13 0.136223 0.121377
14 0.148111 0.13359
15 0.16212 0.145803
16 0.177749 0.158017
17 0.194608 0.17023
18 0.212405 0.182443
19 0.230922 0.194657
20 0.25 0.20687
Optimal Comb. 0.213021 0.182857
Eff Trade-off Line 0 0 0.04
Eff Trade-off Line 1 0.213021 0.182857
Eff Trade-off Line 2 0.426043 0.325714
ariance Frontier (3 risky assets) & the CAL Portfolio Weights in Tangency Port
0.80

0.60

Portfolio Weights
0.40

0.20

0.00
1 2 3
-0.20
0.15 0.35
-0.40

Standard Deviation Asset Number

hts in Tangency Portfolio

3 4 5

Asset Number

0.705882
-0.210084
0.504202
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