Java Python BFC5935: Portfolio Management Theory
2024 Semester 2
INDIVIDUAL ASSIGNMENT01 [ASM01]
Objectives: This assignment is designed to show how the topics covered so far – namely, Topic 1 Asset & Investments, Topic 2 Portfolio Theory and Topic 3 Asset Pricing Models – can be applied using real financial data and Excel. It is also to further develop your technical and analytical skills, which will help with your employability.
Important Note: The sample period and correlation applicable depends on the allocated tutorial with specific tutor, and it is the student’s responsibility to know the tutorial allocated to (e.g. Tutorial 01 – Mon 11am), as well as the tutor’sname.
Plagiarism & Collusion: Note that this is an individual assignment and that it is not a group work – please read all the relevant documents related to Plagiarism & Collusion on the Monash page and on Moodle:
https://www.monash.edu/students/admin/policies/academic-integrity
Any violations are officially misconduct and will be dealt with seriously, and with the case potentially escalated to the Faculty.
Total Marks: 30 Marks [12% of Total Assessment]
Submission: You will need to use the Excel Spreadsheet Template posted on Moodle and submit via Moodle by the due date & time as stated in the Unit Guide. Late submission will result in 10% penalty each day (including weekend & public holiday).
You are also required to submit the ‘signed’ assignment cover sheet confirming that this is your own work. The assignment without the signed cover sheet will be deemed incomplete and the late penalty will apply.
[IMPORTANT] After uploading the files (it will appear as draft, but the files are actually not submitted yet), you will need to click 'submit' and the ‘Status’ will be indicated as ‘Submitted for grading’ .
Please note that you are only allowed one submission – hence it is your responsibility to ensure that all the submitted files are correct.
Also, we would advise that, it is best to not leave until the last minute to submit (especially given that the ASM does not take that long to complete), please feel free to submit at least 1-2 days before the deadline.
For the cover sheet, you can submit as a PDF file, or alternatively, you can have your signature as a picture and paste in the word document. If your signature is in Chinese (or another language), it is completely fine.
Tasks: You are required to construct portfolios using monthly data of National Australia Bank Limited (NAB), and Commonwealth Bank of Australia (CBA), and Qantas Airways Limited (QAN) stocks listed on the ASX (Tip: put ‘.ax’ after the stock ticker and check that the company’s full name is correct), over the following sample period based on your Allocated Tutorial:
TUTOR / MARKER | Tutorial Day & Time | Sample Period |
Merlin & Manapon | Mon 10am, 11am & 12pm, Tue 11am | 2012 – 2014 |
Tracy | Fri 10am, 11am & 12pm | 2015 – 2017 |
Carol | Fri 1pm, 2pm, 5pm & 6pm | 2018 – 2020 |
[Note 1]: Using incorrect stocks and/or sample period, or submitting a PDF file, will incur immediate penalty of 30% [or possibly 100% if the entire assignment is then found to have copied/plagiarised another assignment].
[Note 2]: As stated, you are required to use the template provided – do not modify or add worksheets – This will also incur penalty. All results required can be calculated based on the template provide.
[Note 3]: You are required to show workings in the form of using formulae (i.e. do not copy and paste special as ‘value’) as the marker will check how the answers are calculated. Answers are required to have 4 decimal places.
PART 1 [7 Marks]
[1] Download monthly NAB, CBA & QAN (Adj Close) price data from Yahoo Finance:
https://au.finance.yahoo.com/
[Note that although this is Yahoo AU and that it shows the required dateformat to be'dd/mm/yyyy' - when you actually input the date, it will be based on the US format with month first - i.e. 'mm/dd/yyyy'. You will have to select 'Monthly' for Frequency, and by default, Yaho BFC5935: Portfolio Management Theory 2024 Semester 2 o Finance will provide the end of month prices.]
Input the raw data into Worksheet W1-Monthly Data
[Note] You will need to also obtain the month prior to the starting of the sample period so that you can calculate the return in JAN at the beginning of sample period. For example, if your sample period is 2003-2005, then you will also need to obtain the data in DEC 2002.
Refer to the ASM Supporting Document on Moodle for the important details of downloading and using data from Yahoo Finance.
[2] In Worksheet W2-Calculations – Calculate Monthly Returns based on the price relative (or HPY) formula [(Pt+1 / Pt) – 1] for NAB & CBA and the portfolio consisting of two stocks – Portfolio 1: NAB & CBA - each with 50% weight. Once the series of monthly returns are obtained, calculate the Arithmetic Average Return (using the simple AVERAGE Function in Excel) of NAB & CBA and Portfolio 1 over the sample period. [Note] Based on the previous example, JAN 2003 will be ‘Month 1’ and DEC 2002 will be ‘Month 0’ in the Template.
[3] In Worksheet W2-Calculations – calculate Variance and Standard Deviation (based on the formula taught in class – and also apply ‘n-1’ as the denominator ([Note] Do not use excel function for this) for NAB & CBA and Portfolio 1. Monthly Returns, Variance and Standard Deviation are then annualised.
[Note] To annualise, Monthly Returns and Variance are multiplied by 12. Annual Standard Deviation will be the square root of Annual Variance.
[4] In Worksheet W2-Calculations – Calculate Covariance between these two stocks over the sample period using the formula taught in class.
[Note] To use formula taught in class, first find the difference between return and mean each month for each stock, and second, find the product of the differences of the two stocks.
[5] In Worksheet W2-Calculations – Calculate Correlation between these two stocks over the sample period using the formula taught in class using monthly (not annual) figures.
[6] In Worksheet W2-Calculations – Calculate the Optimal Weights of these two stocks using the formula taught in class, and subsequently the Minimum Variance Portfolio 1’s (MVP 1) Return and Risk (standard deviation) based on the optimal weights using monthly (not annual) figures.
[7] In Worksheet W2-Calculations – Calculate the Coefficient of Variations of NAB & CBA, Portfolio 1 and MVP 1 using monthly (not annual) figures.
PART 2 [7 Marks]
[8] In Worksheet W3-Calculations – Repeat Steps [2] to [7] using NAB & QAN. In this
worksheet, the calculations will be for NAB,QAN, Portfolio 2 and MVP 2.
PART 3 [4 Marks]
[9] In Worksheet W4-Beta – Calculate the Beta’sof NAB & QAN with the Market (Index) Return. (i.e. each stock with the market)
[Note] You have already calculated stock returns previously. Now you need to calculate Excess Returns for both stocks and Market. To run regression, you will need to first add Analysis Tool Pack in Excel.
Adding Analysis Tool Pack as well as running regression have been discussed & demonstrated Lecture 1 & Lecture 3 – please refer to the recordings.
You need to have the regression results in the same Worksheet W4-Beta – output the results from column ‘K’ onwards in the same worksheet W4.
PART 4 [12 Marks]
In Worksheet W5-Analysis – Answer the following questions in the empty cells provided. [Words Limit per question is 200 words]
[10A] With reference to W2 & W3 - Calculations, compare and contrast the Return and Risk of
Portfolio 1 with Portfolio 2. Which is considered to be more efficient? Identify potential factor(s) that cause one portfolio to be more efficient than the other.
[10B] With reference to W3 - Calculations, compare the performances of different assets (NAB,
QAN, Portfolio 2 and MVP 2) based on coefficient of variations. In reference to the characteristics of NAB and QAN, explain why this is expected.
[10C] With reference toW4 - Beta, provide the interpretations of the regression output, specifically
the explanations of Intercept and Beta (X Variable 1) and their significance (p-values) in W4-Beta.
[Note] Null Hypothesis of the Regression Variable(s) is that it is equal to zero (this and running regression in Excel were also covered in Business Statistics). If p-value is less than 0.05 (0.01), then it is considered to be significant at the 5% (1%) level – that is, the coefficient is statistically & significantly different from zero.
[10D] With reference toW4 - Beta, are the regression results consistent with the CAPM predictions?
Explain. And ‘If’ the results are inconsistent, also explain the potential reason(s), based on the concepts covered in BFC5935