This assessment consists of three parts - group report, individual report and
individual presentation. Students who failed to complete all components of this
assessment will receive ZERO marks.
You are working as an investment analyst in an asset management company - Invest ‘Em All Asset Management. Your supervisor Simon who is a portfolio manager has recently come across a seminar on modern portfolio theory. He found that the idea of modern portfolio theory maybe useful in developing new trading strategies. You are asked to investigate the modern portfolio theory using historical market data and analyse the use of it in practice. The investigation will involve the following tasks:
1. Data polishing. Prepare data and calculate required statistics for analysis.
2. Choose the 5 stocks with highest Sharpe ratio in the training period and find the optimal portfolio by applying mean-variance optimisation, assume no short-selling is allowed. Report the expected return and standard deviation of the portfolio.
3. Use the portfolio obtained in 2 and compare the performance of this portfolio in the testing period to your expectation.
4. Comment and discuss the difference.