Stock Market Analysis & Portfolio Creation
Budget: $30 – $250 USD
1. Collect Historical Prices: Gather historical prices for two stocks (or any other risky assets, such as commodities, currencies, cryptocurrencies, or bonds) over the last two years, with daily frequency.
2. Compute Daily Returns: Calculate the daily returns for each asset.
3. Calculate Expected Returns and Standard Deviation: Determine the expected return (average daily return) and the standard deviation for each asset.
4. Complete Correlation or Covariance: Calculate the correlation or covariance between the two assets.
5. Create Virtual Portfolios: Using the data, create 30 virtual portfolios by varying the weight of each asset in the portfolio.
6. Compute Expected Return and Risk: Calculate the expected return and risk for each of the 30 portfolios.
7. Plot Portfolios: Plot all 30 virtual portfolios on a graph with risk on one axis and expected return on the other.
8. Select Efficient Portfolios: From the graph, identify the efficient portfolios using the principle of dominance. This means for two or more portfolios with the same expected return, select the one with the lower risk; for two or more portfolios with the same risk level, select the one with the higher expected return.
9. Identify Efficient Portfolios: Narrow down the selection to only the efficient portfolios from the 30 created.
10. Draw the Efficient Frontier: Connect all the identified efficient portfolios with a curve, which represents the Efficient Frontier.
11. Identify the Markowitz Mean-Variance Optimal Portfolio: Determine the Minimum Variance Portfolio from the efficient portfolios.
12. Submit Your Work: Present your findings in an Excel sheet: Sheet 1 for data and Sheet 2 for the Efficient Frontier graph.
2. Compute Daily Returns: Calculate the daily returns for each asset.
3. Calculate Expected Returns and Standard Deviation: Determine the expected return (average daily return) and the standard deviation for each asset.
4. Complete Correlation or Covariance: Calculate the correlation or covariance between the two assets.
5. Create Virtual Portfolios: Using the data, create 30 virtual portfolios by varying the weight of each asset in the portfolio.
6. Compute Expected Return and Risk: Calculate the expected return and risk for each of the 30 portfolios.
7. Plot Portfolios: Plot all 30 virtual portfolios on a graph with risk on one axis and expected return on the other.
8. Select Efficient Portfolios: From the graph, identify the efficient portfolios using the principle of dominance. This means for two or more portfolios with the same expected return, select the one with the lower risk; for two or more portfolios with the same risk level, select the one with the higher expected return.
9. Identify Efficient Portfolios: Narrow down the selection to only the efficient portfolios from the 30 created.
10. Draw the Efficient Frontier: Connect all the identified efficient portfolios with a curve, which represents the Efficient Frontier.
11. Identify the Markowitz Mean-Variance Optimal Portfolio: Determine the Minimum Variance Portfolio from the efficient portfolios.
12. Submit Your Work: Present your findings in an Excel sheet: Sheet 1 for data and Sheet 2 for the Efficient Frontier graph.