Construct an optimal complete portfolio
construct an optimal complete portfolio using two methods, Markowitz portfolio optimization procedure and Treynor-Black procedure. Below are guidelines you can use when doing the project. You are not necessary to follow the guidelines step by step exactly.
Download adjusted end of month stock price dataset during the past five years for seven stocks across seven different industries in U.S. Also download the monthly dataset for S&P500 index and T-bills for the corresponding time periods.
Convert all the datasets from the monthly price to monthly returns for the same time period.
Determine the risk-free rate (T-bill rate could be considered as risk-free rate).
Determine the expect return & standard deviation for market portfolio (E(rm) = A*σm2).
Estimate market (S&P500 index) risk premium for next month.
Calculate monthly expected returns for each stock.
Read Appendices A and B and using the template provided and to construct Correlation matrix, Covariance matrix, Bordered Covariance Matrix for Equally Weighted Portfolio and for Target Return Portfolio.
Create minimum variance portfolio frontier/portfolio efficient frontier.
Construct optima risky portfolio and optimal complete portfolio using the Markowitz Portfolio Optimization Model and Excel build-in functions. For details of the application, you can read Appendices A and B on Pages from #232 to #244.
Estimate Expected returnbetaresidual standard deviation for each stock.