All students will use the available databases (e.g. Datastream) to choose five different stocks from an index of their choice (e.g. FTSE100). The following are required:
Calculate the average returns, the standard deviations and the covariance for a month, using daily data.
Choose two of the five stocks and show graphically the combinations of risk and return for portfolios comprising the two stocks.
Find the portfolio mix that represents the minimum variance portfolio and calculate the risk and the return of this portfolio?
Check if the variance can be reduced further by forming a portfolio with an equal investment with all the five other stocks.
Comment on your results and on the view that portfolio variance continues to decrease as we add more assets to the portfolio.
With this assignment, the students should engage and show deep understanding of the 1st ILO (as described in the unit guide).
Word limit: 1500 words
1.McMillan, M.G., Pinto, J.E., Pirie, W.L., Van de Venter, G. and Kochard, L.E., 2011. Investments: Principles of Portfolio and Equity Analysis. Wiley
2.Frank Reilly and Keith Brown. Investments: Analysis of Investment & Management of Portfolios. 10th edition.
3.Brealey, R.A and Myers, S.C., 2000. Principles of Corporate Finance, 6th ed. McGraw Hill
4.Elton, E., Gruber, M., Brown, S. and Goetzmann, W., 2007. Modern Portfolio Theory and Investment Analysis. 7th ed. Wiley
5.Hull, C.J., 2012. Risk Management and Financial Institutions. 3rd ed. Wiley
6.Journal of Business Finance and Accounting
7.Journal of Finance
Thomson Analytics (Datastream)
There are different formats which could be used for this assignment but you may consider the following structure below for your work:
Table of Contents
Aims and Objectives
Review of relevant literature and theory.
Methodology and Data (including the definition of variables)
Results and Discussion
Conclusions and recommendations
Appendices (additional relevant material)
Added on 17.03.2015 10:00
These files are the related PPT of this course. I hope it can be helpful for you to complete this paper.