Assignment requirements for the course Derivatives and Risk Management:

Individual Investment Trading Report:

The goal of this individual assessment is to gain a better understanding of the equity portfolio investment $($in the US stock market$)$ and risk management processes. Below are the tasks to be completed in this assessment:

$1)$ Create an account on marketwatch.com and join the following trading game:

$2)$ Your goal is:

a$.$ to set up and manage an equity portfolio.

b$.$ to make profit by trading from the beginning of Monday, $29$th April $2024[1]$ until Friday $10$th May $2024($NOTE: HOWEVER, I WAS LATE AND MY FIRST TRADING DAY WAS IN $7$ MAY $2024$ TO $10$ MAY $2024$ IN VIETNAM TIME$).$

c$.$ to identify and manage the portfolio risk and

d$.$ to communicate your investment and risk management process using a professional report.

There should be two elements to your portfolio: i$)$ an initial portfolio that must remain fixed for the trading period, and ii$)$ an additional portfolio that you can use to actively trade over the trading period.

The initial equity portfolio should consist of at least $5$ different stocks and should be created on the first trading day $(29$th April $2024)($NOTE: I WAS LATE AND MY FIRST TRADING DAY WAS ON $7$ MAY $2024$ TO $10$ MAY $2024).$ The stocks for the initial portfolio should belong to a single American index, for example, the S&P $500,$ Dow Jones, NASDAQ. $($NOTE: I CHOSE $5$ STOCKS FOR INITIAL PORTFOLIO: AZN, CSCO, EBAY, NVEC AND SPTN WERE ALL ON NASDAQ INDEX$)$

The additional portfolio can be created once you have chosen your $5$ stocks and have decided on how much to spend. Any leftover funds after the purchase of the initial portfolio can then be used to actively trade with the objective of maximizing profit. The stocks in the active element of your portfolio can be traded across American indexes. $($NOTE: BESIDES $5$ STOCKS I BOUGHT FOR INITIAL PORTFOLIO IN MY FIRST TRADING DAY ON $7$ MAY $2024.$ I BOUGHT MORE MANY ACTIVE STOCKS LATER$)$

Note that you will be trading American equities and as such, the market timing is $9\mathrm{.}30$am $4$pm EDT $($or $8\mathrm{.}30$pm $3$am the next day in Vietnam time$).$ You can place your trades after hours during the day, Vietnamese time, and they will be executed once the market opens in America.

Calculate the one day $99\%-$Value at Risk of your initial portfolio $($portfolio created on the first trading day $($NOTE: I WAS LATE AND MY FIRST TRADING DAY WAS ON $7$ MAY $2024$ TO $10$ MAY $2024)$ using the historical approach. Use daily stock prices since $1$st January $2019$ for the calculation of the VaR $($QUESTION: I$$M STILL WONDERING THAT TO CALCULATE VAR OF MY INITIAL PORTFOLIO, WE HAVE TO FIND STOCK PRICE OF EACH STOCK FROM $1$ST JANUARY $2019$ AND THEN CALCULATE THE PORTFOLIO RETURN, BUT I HAVE TO FIND STOCK PRICE FROM $1$ST JANUARY $2019$ TO WHICH DAY IS CORRECT IN THIS CASE, CALCULATE VAR OF MY INITIAL PORTFOLIO WHICH MEAN I COLLECT DATA INCLUDE: CLOSING PRICE OF EACH STOCK IN INTIAL PORTFOLIO FROM $1$ST JANUARY $2019$ TO CLOSING PRICE OF EACH STOCK IN INITIAL PORTFOLIO IN MY FIRST TRADING DAY $(7$ MAY $2024)$ OR CLOSING PRICE OF EACH STOCK IN INITIAL PORTFOLIO IN MY LAST TRADING DAY $(10$ MAY $2024)$ OR CLOSING PRICE OF EACH STOCK IN INITIAL PORTFOLIO IN $1$ DAY BEFORE THE TRADING DAY $(6$ MAY $2024)?$ WHICH ONE IS MOST CORRECT IN THIS CASE? EXPLAIN PLEASE. AND AFTER I FOUND THE DATA OF STOCK PRICE FOR EACH STOCK, THEN I CALCULATE EACH STOCK RETURN AND CALCULATE THE PORTFOLIO RETURN, BUT TO CALCULATE THE PORTFOLIO RETURN, I HAVE TO CALCULATE THE WEIGHT OF EACH STOCK IN INITIAL PORTFOLIO. IN ORDER TO DO THAT, FIRST, I IDENTIFY THE STOCK PRICE OF EACH STOCK $($I ALSO TAKE THE CLOSING PRICE OF EACH STOCK IN MY FIRST TRADING DAY ON $7$ MAY $2024,$ IS IT CORRECT? MUST BE CONSISTENT WITH STOCK PRICE OF WHICH TRADING DAY ABOVE$),$ SECOND, I CALCULATE THE POSITIONS USD BY TAKING NUMBER OF SHARES THAT I BOUGHT OF EACH STOCK IN MY FIRST TRADING DAY MULTIPLIED BY THE STOCK PRICE ABOVE. FINALLY, I CALCULATE THE WEIGHT OF EACH STOCK IN INITIAL PORTFOLIO BY TAKING POSITIONS USD OF EACH STOCK DIVIDED BY THE TOTAL POSITIONS USD OF $5$ STOCKS TO CALCULATE THE WEIGHT. AND I HAVE WEIGHT AND EACH STOCK RETURN, I CALCULATE THE PORTFOLIO RETURN AND CALCULATE VAR. BUT I$$M WONDERING WHICH DAY THAT I COLLECT DAT FOR STOCK PRICE IS MOST CORRECT IN THIS CASE?

Additionally, undertake the following on the initial portfolio:

a$)$ Calculate the Beta of your initial equity portfolio $($NOTE: I CALCULATE BETA FOR EACH STOCK USING CAPM AND THEN BASED ON WEIGHT OF EACH STOCK IN INITIAL PORTFOLIO TO CALCUALTE BETA FOR INITIAL PORTFOLIO, SAME QUESTION AS ABOVE, TO CALCULATE BETA USING CAPM, I HAVE TO FIND STOCK PRICE OF MARKET $($NASDAQ$)$ AND STOCK PRICE OF EACH STOCK IN INITIAL PORTFOLIO. SO I FIND THE CLOSING PRICE OF NASDAQ AND CLOSING PRICE OF EACH STOCK IN WHICH TRADING DAY $($DATA FROM $1$ST JANUARY $2019$ TO $7$ MAY $2024),$ IS IT CORRECT? EXPLAIN WHY PLEASE$)$

b$)$ Hedge your initial portfolio against share price declines with Futures contracts. The futures index value should be recorded on the first and last day of trading, i$.$e$.29$th April $2024$ and $10$th May $2024$ respectively. It is recommended that you record the index price when you purchased and sold the final share in your initial portfolio.

c$)$ Select one stock from the initial portfolio and hedge its position against potential losses with an Options contract. The option premium should be recorded on the first day of trading, i$.$e$.29$th April $2024.$

For the active portfolio, you can engage in additional transactions $($either buying or selling$)$ of stocks during the trading period in order to maximize your portfolio$$s return. You can purchase additional shares of the companies in your initial portfolio to actively trade in your active portfolio but note that you cannot trade the shares in your initial portfolio, e$.$g$.$ if you have $1000$ Tesla shares in your initial portfolio, and then decide to trade an additional $500$ Tesla shares, only the additional $500$ can be actively manage. The initial $1000$ shares cannot be touched. A copy of your initial and additional portfolio including the list of stocks and balances is required in the report as part of your analysis. Whether you engage in additional trades, please keep in mind that you must maintain the $5$ initial stocks in your portfolio for whole the trading period so you can perform the required hedging activities at the end of the trading period. You are allowed to use AI Generative tools $($e$.$g$.,$ the free trial version of Toggle AI$,$ TICKERON, SCANZ or others$)$ to help you in the process of finding an asset $($stock$)$ to support your decision in your active portfolio. Please provide evidence $($e$.$g$.,$ a screenshot or the transcript of the conversation with the AI Generative tools$)$ and you need to present your counterargument and evaluate the advice $($pros and cons$)$ from the AI tools.

$($Note: Hedging of the initial portfolio should be done on the day it is created. Make sure to use the relevant derivative prices on that day. A screen capture of the listed price of the relevant derivative contracts used for hedging $($with the specified date where possible$)$ should be attached to your report$).$

Assessment Guide

Your report should include the following sections $(*$note: this marking guide gives you an indication of the weight awarded to each report element, but the final scores will be based on the marking rubric$)$:

$1.$ Accuracy in application of theory, practical concepts, and technical knowledge $(20$ marks$)$

Trading philosophy: Provide an overview of your trading philosophy, i$.$e$.$ how stocks were selected, and strategy to outperform the market. You should identify yourself as a value or growth investor or a mixture of both and provide justifications. $(5$ marks$)$

Portfolio construction: Present your initial portfolio including information on why you have invested in the stocks in your initial portfolio. $(5$ marks$)$

o Research information of this part could include:

a$.$ the fundamentals of each stock

b$.$ the technical analysis of each stock

c$.$ news and the overall market and macroeconomic condition

d$.$ the initial weightings of the portfolio and the rationale for that composition

o Additionally, you should also provide a calculation of expected return of your portfolio using the CAPM $($Beta$,$ risk free rate, expected market return$)($QUESTION: IT MEANS CALCULATE THE EXPECTED RETURN OF MY INITIAL PORTFOLIO, RIGHT?, AND IN ORDER TO CALCULATE THE EXPECTED RETURN OF INITIAL PORTFOLIO, I HAVE TO FIND EXPECTED RETURN OF EACH STOCK IN INITIAL PORTFOLIO BY CALCULATING BETA FOR EACH STOCK AS ABOVE, BUT I DO NOT KNOW THE MEANING OF THIS QUESTION LIKE THEY WANT ME TO CALCULATE EXPCECTED RETURN OF INITIAL PORTFOLIO IN MY FIRST TRADING DAY $(7$ MAY $2024,$ SO I HAVE TO FIND CLOSING PRICE FROM $1$ST JANUARY $2019$ TO $7$ MAY $2024)$ OR THEY WANT ME TO CALCUALTE THE EXPECTED RETURN OF MY INITIAL PORTFOLIO $1$ DAY BEFORE I START TO TRADE $(6$ MAY $2024,$ SO I HAVE TO FIND STOCK PRICE FROM $1$ST JANUARY $2019$ TO $6$ MAY $2024),$ WHICH DAY IS CORRECT? EXPLAIN PLEASE.

o Risk identification $(5$ marks$)$

$-$ In this section you could discuss the risk profile of your portfolio. The discussion should include the following points:

a$.$ The systematic risk of your initial portfolio $($QUESTION: WHAT SYSTEMATIC RISK IN THIS CASE, HOW WE IDENTIFY AND CALCUATE IT$)$

b$.$ The unsystematic risk of your initial portfolio $($QUESTION: WHAT UNSYSTEMATIC RISK IN THIS CASE, HOW WE IDENTIFY AND CALCUATE IT$)$

c$.$ Calculation and discussion of the one day $99\%-$Value at Risk of your portfolio using historical approach. $($I PUT MY QUESTION FOR THIS POINT ABOVE$).$

$2.$ Depth of evaluation and explanation $(20$ marks$)$

o Reflection on the trading process

A comparison of the expected return on the portfolio $($i$.$e using the CAPM model$)$ and the actual returns achieved $($based on stock price movement$).$ Discuss the difference and implication this has in relation to the potential risk in stock portfolio investment. This discussion may require a demonstration of good understandings of the CAPM model, how it is used, and what it often shows. $(4$ marks$)($QUESTION: LIKE I ASKED ABOVE, EXPECTED RETURN PORTFOLIO HERE IS EXPECTED RETURN OF MY INITIAL PORTFOLIO? AND WHEN WE CALUCULATE THE EXPECTED RETURN OF INITAL PORTFOLIO, WE SHOULD TAKE DATA OF STOCK PRICE FROM $1$ST JANUARY $2019$ TO WHICH DAY? EXPLAIN. AND FOR ACTUAL RETURN, IT MEANS ACTUAL RETURN OF MY INITIAL PORTFOLIO? TO CALCULATE THIS, I CALCULATED BY: $($STOCK PRICE OF EACH STOCK IN INITIAL PORTFOLIO WHEN I SELL IN LAST TRADING DAY $(10$ MAY $2024)$ MINUS THE STOCK PRICE OF EACH STOCK IN INITIAL PORTFOLIO WHEN I BUY IN THE FISRT TRADING DAY$(7$ MAY $2024))/$ THE STOCK PRICE OF EACH STOCK IN INITIAL PORTFOLIO WHEN I BUY IN THE FISRT TRADING DAY $(7$ MAY $2024)?$ IS IT CONRRECT. EXPLAIN. AND THEN COMPARE THE EXPECTED RETURN AND ACTUAL RETURN OF INITIAL PORTFOLIO? $($PLEASE NOTICE THE DAY, I SHOULD ANALYSE TO WHICH DAY IS MOST CORRECT IN THIS CASE?$).$

A calculation of the net portfolio return taking into account the hedging transactions, and a calculation of net return of the particular stock that you have hedged using option contracts. $(4$ marks$)($QUESTION: NET PORTFOLIO RETURN MEANS TAKING ALL THE AMOUNT OF MONEY WE RECEIVED $($FROM PASSIVE STOCKS $($INITIAL PORTFOLIO$)$ AND ACTIVE STOCKS $($ADDITIONAL PORTFOLIO$))$ AFTER ALL TRADINGS THEN MINUS THE COMMISSION OF ALL TRADINGS AND COST OF HEDGING, RIGHT? AND CAN I USE CASHFLOW TO CALCULATE $($FLOW IN AND FLOW OUT$).$ EXPLAIN. AND I CHOSE SPTN STOCK TO HEDGE, SO I WILL CALCULATE THE NET RETURN FOR THIS STOCK SEPERATELY, RIGHT? HOW CAN I CALCULATE IT$?$

A comparison of the hedging transactions from which you should make a conclusion on i$)$ the effect of hedging on your investment portfolio e$.$g how it helped you manage the risks that you have identified above, and ii$)$ the preferable derivative contracts $($among the two$)$ that you would prefer to use in hedging an investment portfolio. $(4$ marks$)$

Using appropriate AI Generative tools $($e$.$g$.,$ Toggle AI$,$ TICKERON, SCANZ$),$ provide analysis$/$opinion$/$recommendation $($buy$/$sell$)$ of one aspect of a stock that you select to be added to your active portfolio. In addition, you need to present your counterargument and evaluate the advice $($pros and cons$)$ from the AI tool using one of the relevant frameworks we learned in the course $($You need to state which frameworks you are referring to in your report, e$.$g$.,$ foreign exchange risk, interest rate risk, business risk, etc.$).(4$ marks$)$

OKAY, PLEASE SUMMARY ALL ABOVE REQUIREMENTS, ANSWER QUESTIONS I PUT ABOVE AND YOUR ANSWER MUST BE REASONAL AND CONSISTENT THROUGHTOUT THIS ASSIGNMENT.