Question
Stocks: 50% of portfolio - Advanced Micro Devices, Inc. (AMD) starting price: 30.9$ Closing price: 29.94$ 50% of portfolio - Canopy Growth Corp (CGC) Starting
Stocks:
50% of portfolio - Advanced Micro Devices, Inc. (AMD)
starting price: 30.9$ Closing price: 29.94$
50% of portfolio - Canopy Growth Corp (CGC)
Starting price: 24.21$ Closing price: 27.31$
1)
Report the variance-covariance matrix
Option 1: Take estimates from the other web pages
You can take estimates of volatilities of individual stocks from Reuters, Bloomberg, Yahoo finance or other sources. If you are not quite sure how to estimate covariances between stocks:
You can take estimates of Reuters, Bloomberg or other credible web page.
Option 2: Compute by yourself using historical data
How to estimate variance-covariance matrix from historical data:
Hint: check my excel file.
Option 3: Less preferable
You can assume that all the covariances are zeroes. It is an option only if you are unable to do one of the two methods above.
2)Compute the volatility of your portfolio
Hint: it is easy to compute in matrix form in excel.MMULT command.Checkmy excel.
Sigma2_p=w_T* Variance-covariance matrix*w
3) Compute Sharpe ratio, assuming risk-free rate of 2%. Interpret Sharpe ratio.
Hint: you have to convert risk-free rate of 2% per year, to2-weeksinterest rate, and only after that use it in your calculations.
For example: 2% converted to monthly rate is 0.02/12.
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