QUANTITATIVE PORTFOLIO ANALYSIS 25876 SUMMER 2020 MAJOR PORTFOLIO PROJECT Due Date : February 12, 2021 The portfolio project will involve the construction of two portfolios: 1. An index tracking portfolio; and 2. A speculative "capital growth" portfolio constructed based on a method of your choice. The portfolios will run for the period: December 7, 2020 to February 5, 2021 Index Tracking Portfolio The purpose of the tracker portfolio is to replicate the return on the ASX/S&P200. The performance of this portfolio is measured by the degree of correlation between movements in value of the portfolio and movement in value of the index. Other risk adjusted performance measures should also be used. Capital Growth Portfolio The speculative portfolio is to be formed with a view to maximising capital gains. The performance of this portfolio is measured by its excess growth in value over and above the growth of the ASX/S&P 200 price index. This portfolio should be constructed using fundamental analysis (see below) or another method for portfolio construction. Most of the data and company information that you will need can be obtained from https://www.marketindex.com.au/, the ASX website http://asx.com.au/ or from http://www.corporateinformation.com/ The formation of each of the portfolios is constrained by the following rules 1. The portfolio must be constructed using ASX listed ordinary shares. 2. The portfolio must have at least seven different shares. 3. The portfolios cannot have more than 25 shares. 4. Each portfolio has an initial value of $100m. 5. Short selling is permitted for the growth portfolio only. Short selling NOT permitted for the tracker portfolio. 6. All funds must be invested in stocks (cannot hold cash). 2 7. You have the choice of rebalancing each portfolio once over the holding period (this is optional) You should set up a spreadsheet to track the value of your portfolio on a daily basis. You need to obtain the daily closing prices of the stocks selected (it is possible to download daily price history directly into a spreadsheet). On the course website, you will find a data file containing daily historical stock prices for the 200 stocks in the S&P/ASX 200 up to the December 4, 2020. You will also find the constituents of the S&P/ASX 200 and their percentage weightings. Daily stock price data for the 200 largest stocks (market cap) in the S&P/ASX 200 will also be made available for the investment period 07/12/2020 – 05/02/2021 on February 5, 2021 at 6pm. For the portfolio project report, you will be required to prepare a report summarizing what you learned from this project. Include some discussion about 1. The rational/technique lying behind the composition of each of your portfolios; 2. The daily (i) value of your portfolios, and (ii) growth in the dollar value of each of your portfolios; 3. The continuously compounded percentage growth rate of the portfolios; 4. For each stock in your portfolio: the mean return, standard deviation of return and correlation between the selected stocks; 5. The mean and standard deviation of the portfolios’ returns compared with the mean and standard deviation of the S&P/ASX 200 over the investment horizon; 6. The performance of each of the portfolios as measured against their stated aims and by applying an appropriate performance measure; 7. For the growth portfolio, the project report should also include a) A brief history of each company; b) An overview of the state of the economy, and its effect on the companies in question; c) An analysis of the relevant industries. d) For each company: ii) Discuss their future prospects, growth, stability, market share, and risk iii) Analyse financial data for each company, for example - P/E, Price Range, EPS, DPS, Book Value - Leverage, Dividend policy, Estimated growth Other information relevant to the stock market may also be useful to maintain on a daily basis as it could be used in the project report. The portfolios begin their life on December 7, 2020 and end on February 5, 2021 3 January 04, 2021 Notify your lecturer (by e-mail) of the composition of each of your portfolios. For example, your portfolios might be specified thus, Index portfolio Share Price No. Shares Value Weight CBA 45.1 44,346 2,000,000 20.00% BHP 38.7 72,351 2,800,000 28.00% NCM 36.5 46,575 1,700,000 17.00% NAB 22.2 69,369 1,540,000 15.40% RIO 69.7 28,121 1,960,000 19.60% Total 10,000,000 100.00% Capital growth portfolio Share Price No. Shares Value Weight CBA 45.1 -44,346 -2,000,000 -20.00% WPL 33.6 89,286 3,000,000 30.00% MQG 23.2 -129,310 -3,000,000 -30.00% BHP 38.7 77,519 3,000,000 30.00% RIO 69.7 43,042 3,000,000 30.00% NCM 39.1 153,453 6,000,000 60.00% Total 10,000,000 100.00% Please note that you do not have to justify your stock selection or portfolio composition at this stage. The MAXIMUM word limit for the report is 2000 words. The mark awarded for the portfolio project will depend on the documentation of you transactions, your ability to defend the portfolio selections and the portfolio performance evaluations.
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