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    Stockportfolio

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    api-285777244
    The document analyzes stock portfolios using different portfolio optimization models including the classical Markowitz model, single index model, and constant correlation model. It identifies the optimal portfolios under each model and compares the expected returns and risk estimates. It also explores adjusting stock betas using Blume's and Vasicek's techniques in the single index model.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Stockportfolio

    Uploaded by

    api-285777244
    160 views9 pages
    The document analyzes stock portfolios using different portfolio optimization models including the classical Markowitz model, single index model, and constant correlation model. It identifies the optimal portfolios under each model and compares the expected returns and risk estimates. It also explores adjusting stock betas using Blume's and Vasicek's techniques in the single index model.

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    stockportfolio

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    The document analyzes stock portfolios using different portfolio optimization models including the classical Markowitz model, single index model, and constant correlation model. It identifies the optimal portfolios under each model and compares the expected returns and risk estimates. It also explores adjusting stock betas using Blume's and Vasicek's techniques in the single index model.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    160 views9 pages

    Stockportfolio

    Uploaded by

    api-285777244
    The document analyzes stock portfolios using different portfolio optimization models including the classical Markowitz model, single index model, and constant correlation model. It identifies the optimal portfolios under each model and compares the expected returns and risk estimates. It also explores adjusting stock betas using Blume's and Vasicek's techniques in the single index model.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 9

    stockPortfolio

    YIK LUN, KEI


    allen29@ucla.edu
    library(stockPortfolio)
    ticker <-

    c("C", "KEY", "WFC", "JPM", "SO", "DUK", "D", "HE", "EIX", "LUV", "AMGN",
    "GILD", "CELG", "BIIB", "CAT", "DE", "IMO", "MRO", "HES", "YPF", "^GSPC")

    gr1 <- getReturns(ticker, start='1999-12-31', end='2004-12-31')

    No model - classical Markowitz model:


    m1 <- stockModel(gr1, drop=21) # drop index
    #Find the point of tangency:
    op1 <- optimalPort(m1)
    #Plot the 20 stocks, the index, and point G (point of tangency):
    plot(op1)
    #Add the portfolio possibilities curve:
    portPossCurve(m1, add=TRUE)
    #Add the tangent (the following will draw the line only up to G:
    segments(0,0,op1$risk,op1$R)
    #If you want to extend the tangent beyond G:
    slope <- (op1$R-0)/op1$risk
    segments(0,0,2*op1$risk, m1$Rf+slope*2*op1$risk)
    #Add a cloud of points for visualization:
    portCloud(m1)

    0.02
    0.00

    0.01

    Return

    0.03

    0.04

    Risk and Return of Stocks

    0.00

    0.05

    0.10

    0.15

    0.20

    0.25

    Risk

    Single index model:


    #Short sales allowed, defaults: Rf = 0, shortSelling = TRUE
    sm1SIM <- stockModel(gr1, model='SIM', index=21)
    #Short sales not allowed & a choice of Rf.
    sm2SIM <- stockModel(gr1, model='SIM', index=21, Rf=0.03/12, shortSelling=FALSE)
    op1SIM <- optimalPort(sm1SIM)
    op2SIM <- optimalPort(sm2SIM)
    plot(op1SIM)
    points(op2SIM, optPortOnly=TRUE, colOP='#888888', cex=2)
    portPossCurve(sm1SIM, add=TRUE,riskRange=5)

    0.02
    0.00

    0.01

    Return

    0.03

    0.04

    Risk and Return of Stocks

    0.00

    0.05

    0.10

    0.15

    0.20

    0.25

    Risk

    Constant correlation model:


    sm1CCM
    sm2CCM

    <- stockModel(gr1, model='CCM', drop=21)


    <- stockModel(gr1, model='CCM', drop=21, shortSelling=FALSE)

    #===> identify the optimal portfolio for constant correlation model<===#


    op1CCM <- optimalPort(sm1CCM)
    op2CCM <- optimalPort(sm2CCM)
    plot(op1CCM)
    points(op2CCM, optPortOnly=TRUE, colOP='#888888', cex=2)
    portPossCurve(sm1CCM, add=TRUE, riskRange=5)

    0.02
    0.00

    0.01

    Return

    0.03

    0.04

    Risk and Return of Stocks

    0.05

    0.10

    0.15

    0.20

    0.25

    Risk

    Adjusting the betas using Blumes and Vasiceks techniques in single index model
    #Need another historical period:
    gr2 <- getReturns(ticker, start='2004-12-31', end='2009-12-31')
    #Single index model for period 2004-2009:
    sm3SIM <- stockModel(gr2, model='SIM', index=21)
    #Update the model using Blume's technique:
    simBlu <- adjustBeta(sm1SIM, sm3SIM) # default method is "Blume"
    #Update the model using Vasicek's technique:
    simVas <- adjustBeta(sm3SIM, method="V")
    #Optimize:
    op3SIM <- optimalPort(sm3SIM)
    opBlu <- optimalPort(simBlu)
    opVas <- optimalPort(simVas)
    plot(op3SIM, xlim=c(0, 0.25), ylim=c(-0.03, 0.12), main="Betas unadjusted")
    portPossCurve(sm3SIM, add=TRUE, riskRange=10)
    4

    0.05
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    Return

    0.10

    Betas unadjusted

    0.00

    0.05

    0.10

    0.15

    0.20

    Risk

    plot(opBlu, xlim=c(0, 0.25), ylim=c(-0.03, 0.12), main="Betas - Blume")


    portPossCurve(simBlu, add=TRUE, riskRange=10)

    0.25

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    0.00

    Return

    0.10

    Betas Blume

    0.00

    0.05

    0.10

    0.15

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    Risk

    plot(opVas, xlim=c(0, 0.25), ylim=c(-0.03, 0.12), main="Betas - Vasicek")


    portPossCurve(simVas, add=TRUE, riskRange=10)

    0.25

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    Return

    0.05

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    Betas Vasicek

    0.00

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    Risk

    op1
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: no model specified.


    Expected return: 0.02379712
    Risk estimate:
    0.02992525
    Portfolio allocation:
    C
    KEY
    -0.05077884 -0.01803800
    D
    HE
    0.06000250 0.14401262
    CELG
    BIIB
    0.04602932 0.07948149

    WFC
    JPM
    SO
    DUK
    0.23388976 0.10071405 0.30307486 -0.24457688
    EIX
    LUV
    AMGN
    GILD
    0.04989857 -0.03429291 -0.08000181 0.06403138
    CAT
    DE
    IMO
    MRO
    0.01360471 0.11595350 0.31766423 -0.11059292
    7

    0.25

    ##
    HES
    ## -0.04398222

    YPF
    0.05390659

    op1CCM
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: constant correlation model


    Expected return: 0.02233795
    Risk estimate:
    0.03820264
    Portfolio allocation:
    C
    KEY
    -0.029975636 0.047191271
    DUK
    D
    -0.036451917 0.119763275
    AMGN
    GILD
    -0.078260404 0.051914208
    DE
    IMO
    0.032634460 0.305939862

    WFC
    JPM
    SO
    0.051725845 -0.065997705 0.208502051
    HE
    EIX
    LUV
    0.323580180 -0.019731709 -0.012615475
    CELG
    BIIB
    CAT
    0.004786165 0.005214365 0.056663054
    MRO
    HES
    YPF
    0.026561873 -0.006198388 0.014754625

    op1SIM
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: single index model


    Expected return: 0.02017085
    Risk estimate:
    0.02598451
    Portfolio allocation:
    C
    KEY
    -0.057727971 0.061337599
    DUK
    D
    0.009832096 0.103426458
    AMGN
    GILD
    -0.003838124 0.042383781
    DE
    IMO
    0.045868659 0.194444435

    WFC
    JPM
    0.069728577 -0.073997090
    HE
    EIX
    0.209283933 0.028118640
    CELG
    BIIB
    0.017485828 0.021933434
    MRO
    HES
    0.043138688 0.024329979

    SO
    0.177268392
    LUV
    0.014045862
    CAT
    0.047382433
    YPF
    0.025554392

    op2CCM
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: constant correlation model


    Expected return: 0.01941413
    Risk estimate:
    0.03472464
    Portfolio allocation:
    C
    KEY
    WFC
    JPM
    SO
    DUK
    0.000000000 0.029059502 0.030164186 0.000000000 0.179801138 0.000000000
    D
    HE
    EIX
    LUV
    AMGN
    GILD
    0.094870217 0.284219513 0.000000000 0.000000000 0.000000000 0.041755769
    CELG
    BIIB
    CAT
    DE
    IMO
    MRO
    0.000000000 0.000000000 0.040734265 0.016442946 0.269848245 0.010125804
    HES
    YPF
    0.000000000 0.002978415

    op2SIM
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: single index model


    Expected return: 0.01926181
    Risk estimate:
    0.03031291
    Portfolio allocation:
    C
    KEY
    WFC
    JPM
    SO
    DUK
    0.000000000 0.060909492 0.058142240 0.000000000 0.000000000 0.000000000
    D
    HE
    EIX
    LUV
    AMGN
    GILD
    0.117471633 0.273975244 0.034840850 0.000000000 0.000000000 0.055805711
    CELG
    BIIB
    CAT
    DE
    IMO
    MRO
    0.025449941 0.028537244 0.016273719 0.032003331 0.260919984 0.023581898
    HES
    YPF
    0.005995484 0.006093228

    op3SIM
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: single index model


    Expected return: 0.03069542
    Risk estimate:
    0.050631
    Portfolio allocation:
    C
    KEY
    WFC
    JPM
    SO
    -0.163425025 -0.217516214 -0.008610113 0.011793372 0.166009989
    DUK
    D
    HE
    EIX
    LUV
    0.281226197 0.129340183 -0.038780960 0.029198862 -0.112066172
    AMGN
    GILD
    CELG
    BIIB
    CAT
    -0.019990167 0.315392663 0.215680603 -0.006920874 -0.011229793
    DE
    IMO
    MRO
    HES
    YPF
    0.049475294 0.120843676 0.090165012 0.107035611 0.062377856

    opBlu
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##
    ##

    Model: single index model


    Expected return: 0.06210231
    Risk estimate:
    0.1098455
    Portfolio allocation:
    C
    KEY
    WFC
    JPM
    SO
    -0.351892917 -0.542649312 -0.023565045 0.007496025 0.008559911
    DUK
    D
    HE
    EIX
    LUV
    0.355813905 0.145124768 -0.163334908 -0.063269920 -0.285552880
    AMGN
    GILD
    CELG
    BIIB
    CAT
    -0.096470361 0.630714684 0.465289502 -0.046381965 0.009049669
    DE
    IMO
    MRO
    HES
    YPF
    0.141715079 0.254033131 0.202132364 0.231576991 0.121611278

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