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Report Writing: Write portfolio performance reports. Use of a spreadsheet program (Excel) is a must. A. First Report: 1. Discuss your beginning portfolio strategy and security selection process: 2. 3. ▪ Link your market strategy with general market outlook for the year. ▪ What index are you going to try to beat with your stock picks? Why did you pick that index? For each security in your initial portfolio, calculate and comment on the following: ▪ Price level and percentage change so far ▪ A measure of historical returns. (5 years of monthly returns – can be obtained from http://quote.yahoo.com) ▪ Measures of the securitys risk: ` (a) The standard deviation (b) Beta For the whole portfolio, calculate and comment on the following: ▪ total portfolio gain/loss in dollar and percentage terms ▪ Total portfolio Beta ▪ Find the portfolio expected return, using the T-bill rate as the risk-free rate and 12\% as the market return ▪ The correlation matrix B. Second Report: ▪ Revaluate your risk level by forecasting where the market is heading in the future. At this stage you might have to sell or buy securities. 1. For each new trade in your portfolio, calculate and comment on the following: ▪ Justification of the trade ▪ Expectation 2. For the whole portfolio, conduct performance analysis: ▪ Measure absolute performance ▪ Measure performance relative to the benchmark portfolio ▪ Measure performance relative to the risk-adjusted expected return, based on your portfolios average beta ▪ Measure the portfolios excess return: the difference between the actual and the expected. 3. Conclusions ▪ Conclude with a critique of your portfolio - what would you have done differently knowing what you know now? This does not mean using perfect hindsight to decide what stocks you should have purchased! Rather, suppose you were starting today. Given your current knowledge of the stock market compared to earlier in the semester, what would you have done differently in terms of your portfolio strategy and your security selection process? What lessons from the game were useful? Grading not Sources of Information ▪ CNBC: http://www.cnbc.com/ ▪ Wall Street Journal: www.wsj.com ▪NewYorkTimes: www.nyt.com ▪Investopedia: www.investopedia.com▪ MorningStar: www.morningstar.com ▪ Financial Visualizations: www.finviz.com ▪ Yahoo Finance: finance.yahoo.com dealing_room_assignment.pdf Unformatted Attachment Preview BAK 2102- Risk Analysis INDIVIDUAL PROJECT (30\%) – Tentative DUE DATE: June 01, 2020 Leading Excellence in Academics Instructions: 1) This is an individual project. 2) Word limit: 2000 words (excluding graphs, tables, charts and all Appendices) 3) Assignment carries 30\% weight of the final assessment. The assignment carries 100 marks. 4) Assignment must be submitted on time (online softcopy on Turnitin software and hardcopy to be handed to your Instructor) to be considered for evaluation on 01/06/2020 at 3PM. Turnitin details are as follows: Class ID: Password: 5) Late submission will be penalized as: a. 5\% deduction each day for the first six (6) days late submission b. Assignment will not be graded or accepted after 6 days. 6) If you are facing any problems, please make sure to contact lecturer before the due date. 7) Assignment should be typed with BIBF Coursework Cover Sheet showing: i. Title of the Course/Module. ii. Class iii. The name and ID of the student 8) BIBF Dealing Room resources must be utilized in order to fully complete this project. Check your schedule on student whiteboard. In addition, where appropriate, you MUST refer to other relevant journals/publications in support of your work. 9) Photocopying, cheating or any other academic dishonesty will not be accepted. 10) All references must be provided (Harvard style). PROJECT DETAILS Portfolio Simulation & Risk Measurement Due Date: 01/06/2019 In order to apply concepts learned in class and gain practical experience, each student will assume the role of a fund manager and to design and execute an appropriate strategy to maximize the portfolio’s return and measure its risk over the five (5) week investment horizon. The clients of the fund have specified capital appreciation as the main investment objective and have no short-term cash needs. This project will help you learn about the ‘real-life’ market mechanism of portfolio risk measurement, including the terms and terminology of trade execution and the general market environment. Concentrate on the differences between assets (e.g., risk/return characteristics, trading rules, capital requirements) and take advantage of the opportunity to learn about order submission, transaction costs, etc., while managing the money as it would be your own. This assignment is worth 30\% of total grade. While the emphasis for the project is on your education and not on portfolio return, you need to be careful in taking excessive risk to maximize return. Performance is measured on a risk-adjusted basis and the goal is to maximize your risk-adjusted return, defined as the Sharpe ratio of your portfolio. Your challenge will be to design and execute an investment strategy that satisfies the client over the 5 weeks investment period and create and measure the risk of a virtual investment portfolio with initial funding of USD 1,000,000. Each student will use (mainly) Portfolio Simulation program to manage and track the investment portfolio. The program acts like a discount broker and provides trading environment very similar to the real world. You will be charged commission for each trade. Total number of transactions is limited to 200 for the simulation period. Portfolio construction can be from Common stocks that are traded in NYSE, and Nasdaq-AMEX stock. Trades can be submitted by the simulator web page. The final portfolio must contain securities from different sectors to maintain a level of diversification. Students are free to adjust their portfolios based on their capital market expectations. However, the justification and economic rationale for the asset allocation and selected securities should be provided in the report. Portfolio Management Rules • • • To help in managing your risk exposure. Each position should not exceed 10\% of your total assets. You will trade in stocks. Make sure you understand quite well the instrument you are buying. Make sure you familiarize yourself with the simulation program trading rules and risk measurement techniques. Report Writing: Write portfolio performance reports. Use of a spreadsheet program (Excel) is a must. A. First Report: 1. Discuss your beginning portfolio strategy and security selection process: ▪ Link your market strategy with general market outlook for the year. ▪ What index are you going to try to beat with your stock picks? Why did you pick that index? 2. For each security in your initial portfolio, calculate and comment on the following: ▪ Price level and percentage change so far ▪ A measure of historical returns. (5 years of monthly returns – can be obtained from http://quote.yahoo.com) ▪ Measures of the securitys risk: ` (a) The standard deviation (b) Beta 3. For the whole portfolio, calculate and comment on the following: ▪ total portfolio gain/loss in dollar and percentage terms ▪ Total portfolio Beta ▪ Find the portfolio expected return, using the T-bill rate as the risk-free rate and 12\% as the market return ▪ The correlation matrix B. Second Report: ▪ Revaluate your risk level by forecasting where the market is heading in the future. At this stage you might have to sell or buy securities. 1. For each new trade in your portfolio, calculate and comment on the following: ▪ Justification of the trade ▪ Expectation 2. For the whole portfolio, conduct performance analysis: ▪ Measure absolute performance ▪ Measure performance relative to the benchmark portfolio ▪ Measure performance relative to the risk-adjusted expected return, based on your portfolios average beta ▪ Measure the portfolios excess return: the difference between the actual and the expected. 3. Conclusions ▪ Conclude with a critique of your portfolio - what would you have done differently knowing what you know now? This does not mean using perfect hindsight to decide what stocks you should have purchased! Rather, suppose you were starting today. Given your current knowledge of the stock market compared to earlier in the semester, what would you have done differently in terms of your portfolio strategy and your security selection process? What lessons from the game were useful? Grading will be based solely on the logic and consistency of your selections and reports. You will not be graded on the basis of investment performance; rather, you will be expected to: ▪ set investment goals ▪ track your portfolios performance, and that of the benchmark portfolio, each week ▪ prepare for classroom discussion of important events in the markets that may affect the risk or return performance ▪ produce performance reports as required. Sources of Information ▪ CNBC: http://www.cnbc.com/ ▪ Wall Street Journal: www.wsj.com ▪ New York Times: www.nyt.com ▪ Investopedia: www.investopedia.com ▪ MorningStar: www.morningstar.com ▪ Financial Visualizations: www.finviz.com ▪ Yahoo Finance: finance.yahoo.com Grading Scheme (out of 100) Category Grade Outstanding Excellent Distinction 70+ Good Meets requirements of Class Good Merit Mid-Level 60-69 Meets requirements of Class Good within the Class Credit Mid-Level 50-59 Meets requirements of Class Primary Marking Criteria • • • • • • • • • • Comprehensive knowledge • • • • • • • • • • Strong knowledge Understands most but not all of the subject area • • • • • • • • • • Detailed understanding of the subject area Extensive background study Highly focused answer and well structured Logically presented and defended arguments No factual/computational errors Original interpretation New links between topics are developed New approach to a problem Secondary Marking Criteria • Exceeds expectations for most primary criteria • Complete command of subject and other relevant areas • Ideas/arguments are highly original • Exceeds expectations for some primary criteria • Complete command of subject • Ideas/arguments are highly original • Meets all primary criteria • Command of subject but with minor gaps in knowledge • Ideas/arguments are mostly original • • • Meets most but not all primary criteria Command of subject but with some gaps in knowledge • • • • • • • • • Exceeds expectations for some primary criteria Command of subject but with gaps in knowledge Knowledge of key areas/principles Understands the main elements of the subject area • • • Exceeds expectations for some primary criteria Strong factual knowledge with some weaknesses in understanding Ideas/arguments are limited but are well presented Answer focused on question but also with some irrelevant material and weaknesses in structure Arguments presented but lack coherence Has several factual/computational errors • • Matches all primary criteria • Ideas/arguments are limited with weaknesses in logic/presentation Limited problem solving Some weaknesses in presentation and accuracy • • Excellent presentation with very accurate communication Evidence of background study Focused answer with good structure Arguments presented coherently Mostly free of factual/computational errors Some limited original interpretation Well known links between topics are described Problems addressed by existing methods/approaches Good presentation with accurate communication Limited evidence of background study No original interpretation Only major links between topics are described • Ideas/arguments are mostly original Some ideas/arguments are original Meets all primary criteria Strong factual knowledge and understanding Ideas/arguments are well presented but few are original Meets most but not all primary criteria Strong factual knowledge with minor weaknesses in understanding Most but not all ideas/arguments are well presented and few are original Moderate factual knowledge with some weaknesses in understanding Matches most but not all primary criteria Moderate factual knowledge with several weaknesses in understanding Ideas/arguments are limited with weaknesses in logic/presentation Category Grade Good within the Class Pass Mid-Level 40-49 Meets requirements of Class Good within the Class Fail 39 and below Mid-Level Meets requirements of Class Primary Marking Criteria • • • • • • • • • • • • • • • • • • • • • Knowledge of key areas/principles only Weaknesses in understanding of the subject area Limited evidence of background study Answer only poorly focused on question and with some irrelevant material and poor structure Arguments presented but lack coherence Several factual/computational errors No original interpretation Only major links between topics are described Limited problem solving Many weaknesses in presentation and accuracy For PGT - Insufficient to fulfil the associated learning outcomes Insufficient to fulfil the associated learning outcomes No evidence of relevant knowledge or understanding No evidence of background study Answer relies on irrelevant material and lacks a coherent structure No arguments presented or arguments are not relevant to the assessment Many factual/computational errors No attempt at interpretation No links between topics are described No attempt to solve problems or to address the assessment brief The presentation is very weak containing many inaccuracies Secondary Marking Criteria • Exceeds expectations for some primary criteria • Moderate factual knowledge with several weaknesses in • • • • understanding A few ideas/arguments are presented but with weaknesses Matches all primary criteria Limited factual knowledge with several weaknesses in understanding Very few ideas/arguments are presented • • • Matches most but not all primary criteria Limited factual knowledge with many weaknesses in understanding Very few ideas/arguments are presented and with errors in logic/presentation • • • Exceeds expectations for most primary criteria No evidence of knowledge/understanding Only limited evidence of an attempt to answer the question • • • Exceeds expectations for some primary criteria No evidence of knowledge/understanding Very limited evidence of an attempt to answer the question • • Matches all primary criteria No evidence of knowledge/understanding and/or evidence of misunderstanding No attempt to answer/address the question • ... 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