Portfolio Performance

Presentation
Wharton Business & Financial Modelling Capstone
OBJECTIVES
Use the modern Portfolio theory for the optimum allocation of two
assets : VBTLX and VFIAZ

Our goal would be to maximise the returns of the portfolio given the
most optimal level of risk
METHODOLOGY
VBTLX weight : w1
VFIAX weight : w2

To calculate Portfolio Variance :

Sharpe Ratio : (rp - rf)/s.dp

rf = 0%

rp = w1*E(r1) + w2*E(r2)
 VBTLX VFIAX Rf

Avg return 0.17% 1.24% 0%

Variance of return 0.0000644 0.0008966

Std dev 0.80% 2.99%

Covar of returns -0.00001742

VBTLX VFIAX
Alloca on 68% 32%
Amt Invested 3400000 1600000
Average Returns 0.51%
Sharpe Ra o 0.47958

Optimal risky portfolio

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 VBTLX VFIAX Variance Std Dev Mean Sharpe R o
0% 100.0% 0.000897 2.994% 1.24% 0.4134
5% 95.0% 0.000808 2.842% 1.18% 0.4168
10% 90.0% 0.000724 2.690% 1.13% 0.4205
15% 85.0% 0.000645 2.539% 1.08% 0.4245
20% 80.0% 0.000571 2.389% 1.02% 0.4288
25% 75.0% 0.000502 2.240% 0.97% 0.4335
30% 70.0% 0.000438 2.092% 0.92% 0.4386
35% 65.0% 0.000379 1.946% 0.86% 0.4441
40% 60.0% 0.000325 1.802% 0.81% 0.4500
45% 55.0% 0.000276 1.660% 0.76% 0.4563
50% 50.0% 0.000232 1.522% 0.70% 0.4628
55% 45.0% 0.000192 1.387% 0.65% 0.4692
60% 40.0% 0.000158 1.258% 0.60% 0.4749
65% 35.0% 0.000129 1.136% 0.54% 0.4788
70% 30.0% 0.000105 1.024% 0.49% 0.4791
75% 25.0% 0.000086 0.926% 0.44% 0.4724
80% 20.0% 0.000071 0.845% 0.38% 0.4541
85% 15.0% 0.000062 0.789% 0.33% 0.4190
90% 10.0% 0.000058 0.761% 0.28% 0.3641
95% 5.0% 0.000059 0.766% 0.22% 0.2922
100% 0.0% 0.000064 0.802% 0.17% 0.2124

65.00% 35.00% 0.00012909 1.14% 0.54% 0.478835

66.00% 34.00% 0.000123855 1.11% 0.53% 0.479258

67.00% 33.00% 0.000118819 1.09% 0.52% 0.479516

68.00% 32.00% 0.000113982 1.07% 0.51% 0.479586

69.00% 31.00% 0.000109344 1.05% 0.50% 0.479442

70.00% 30% 0.000104905 1.02% 0.49% 0.479057

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 PORTFOLIO BENCHMARK
Date Adj Close Returns
Jan 01, 2016 22.28
Feb 01, 2016 22.13 -0.67% NAME OF STOCK : AAPL
Mar 01, 2016 25.08 13.33%
Mar 31, 2016 21.57 -14.00%
TIME PERIOD : JAN,16 - JUL,2016
Apr 30, 2016 22.98 6.54%
Jun 30, 2016 24.13 5.00%
Jul 31, 2016 24.56 1.78%

Mean 2.00%
Std Dev 8.38%
Sharpe Rtio 0.2385
VBTLX VFIAX Montly
Jan-16 1.44% -4.97% -0.61%
0.41%
VBTLX and VFIAX returns
Feb-16 0.67% -0.14%
Mar-16 0.95% 6.78% 2.82%
Apr-16 0.39% 0.39% 0.39%
0.59%
TIME PERIOD : JAN,16 -
May-16 0.02% 1.79%
Jun-16 1.94% 0.26% 1.40% JUL,2016
Jul-16 0.65% 3.68% 1.62%

Mean 0.87% 1.11%

Returns 0.94%
std dev 1.02%
Sharpe Ra o 0.92473
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PORTFOLIO BENCHMARK
OBSERVATION
• Diversification is a very important component of portfolio management
• The portfolio (consisting of VBTLX and VFIAX) shows significantly
better returns and lower volatility than a single security AAPL.
• The Sharpe ratio of the portfolio is also higher than that of AAPL
• (0.924 compared to 0.238)
• The graph in the above slide clearly illustrates that the portfolio has
more consistent returns and lower volatility.

Hence we can conclude that a better return does not always signify better
investment, volatility and risk should also be taken into consideration.
The result of this case shows Sharpe ratio is a good measure, which needs
to be taken into consideration while computing expected returns
THANK YOU