The part 1 of the paper involved selection of stock from either of Australia, Singapore, Hong Kong or Malaysia. The stocks had to be of different Industry groups. The task involved extracting weekly stock prices of these stocks and subsequently for market index for recent 52 weeks. The section involved calculating weekly returns, means return of these stocks and index, standard deviation, covariance, variance of stocks, and correlation between these stocks. Part 2 of the assignment involved construction of a portfolio using the stocks I selected in Part 1.
It involved combining the stocks using equal weights and Calculating the mean return and variance for your portfolio. Also it involved comparing these with the returns and variances of your individual stocks. Recent extraordinary economic slowdown has changed the outlook of many of the stakeholders towards many of the economic issues including the developments in banking. In the light of the current financial turmoil it is interesting to investigate the pattern in the Credit cycle with respect to the economic scenario. The portfolio this formed is as follows:It can be analyzed from the mean returns of the portfolio and individuals stocks that the mean return of the portfolio is less negative than QAN and DJS; however WBC has clearly outperformed both portfolio as well as the market index. The portfolio return in our case is also quite less than that of market return of -0.14%. So in this case our portfolio has not been successful in outperforming the market index. The case of return also applies to variance in a way that variance of portfolio is less than QAN and DJS; however WBC has clearly outperformed both portfolio as well as the market index.
The next part of the paper involved calculating the risk free return which was the return on 180-day T-Bill in our case. This was calculated as follows: