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# Case Investment Portfolio Non Lp 06 Dec 08

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Investment Portfolio data analysis in MS Excel 2007 (with Solver add-in)

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### Case Investment Portfolio Non Lp 06 Dec 08

1. 1. Portfolio Optimization Stock Input Data Stock-1 Stock-2 Stock-3 Mean Return 0.14 0.11 0.10 SD of Return 0.20 0.15 0.08 Correlations Stock-1 Stock-2 Stock-3 Covariances Stock-1 Stock-1 1 0.60 0.40 Stock-1 0.0400 Stock-2 0.60 1 0.70 Stock-2 0.0180 Stock-3 0.40 0.70 1 Stock-3 0.0064 Investment Decisions Stock-1 Stock-2 Stock-3 Sum Required Fractions to Invest 0.5 0 0.5 1.00 = 1.00 → Expected Return Actual must be Required 0.1200 >= 0.12 → Constraint Portfolio Variance 0.0148 Portfolio SD 0.121655 → objective function Risk Verses Return Req'd Return Stock-1 Stock-2 Stock-3 SD Return 0.100 0.105 0.110 0.115 0.120 0.125 0.130 0.135 0.140
2. 2. info given /cell excel:: Product of cell calculation decision variable/cell Solver computation Stock-2 Stock-3 0.0180 0.0064 0.0225 0.0084 0.0084 0.0064 Transpose of Fractions to Invest Constraint for calc Portfolio Variance 0.5 0 0.5
3. 3. EMP 504 CH 08: Nonlinear LP Investment Portfolio Rebecca Paris #106909694 Portfolio Optimization info given /cell excel:: Product of cell calculation Stock Input Data decision variable/cell Stock-1 Stock-2 Stock-3 Solver computation Mean Return 0.14 0.11 0.10 SD of Return 0.20 0.15 0.08 Correlations Stock-1 Stock-2 Stock-3 Covariances Stock-1 Stock-2 Stock-3 Stock-1 1 0.60 0.40 Stock-1 0.0400 0.0180 0.0064 Stock-2 0.60 1 0.70 Stock-2 0.0180 0.0225 0.0084 Stock-3 0.40 0.70 1 Stock-3 0.0064 0.0084 0.0064 Investment Decisions Stock-1 Stock-2 Stock-3 Sum Required Transpose of Fractions to Invest Fractions to Invest 0.5 0 0.5 1.00 = 1.00 → Constraint for calc Portfolio Variance 0.5 Expected Return 0 Actual must be Required 0.5 0.1200 >= 0.1200 → Constraint Portfolio Variance 0.0148 Portfolio SD 0.1217 → objective function Risk Verses Return Req'd Return Stock-1 Stock-2 Stock-3 SD Act.Return 0.100 0.0000 0.0000 1.0000 0.0800 0.1000 Efficiency Frontier 0.105 0.1250 0.0000 0.8750 0.0832 0.1050 0.110 0.2500 0.0000 0.7500 0.0922 0.1100 0.1500 0.115 0.3750 0.0000 0.6250 0.1055 0.1150 0.120 0.5000 0.0000 0.5000 0.1217 0.1200 0.1400 0.125 0.6250 0.0000 0.3750 0.1397 0.1250 0.130 0.7500 0.0000 0.2500 0.1591 0.1300 0.1300 Portfolio Return 0.135 0.8750 0.0000 0.1250 0.1792 0.1350 0.140 1.0000 0.0000 0.0000 0.2000 0.1400 0.1200 0.1100 0.1000 0.0900 0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 Portfolio Std Dev