1. Efficient Frontier construction
Step:1
Select7 companies’name.
Selectclosingprice of those selectingcompaniesfor5years.
Step:2
Return:Today price-yesterdayprice /yesterdayprice.
Average:=AVERAGE(selectall returnvalue of acolumn).
STD: =STDEVA (selectall Returnvalue of acolumn).
Step:3
Table 1: Monthly Average Return and Standard Deviation
Copyand paste companiesname onothercolumnandrow.
AlsocopyAverage ReturnandSTD and paste withTranspose.
Step:4
Table: 2 Correlation Matrix
Againcopy& paste companiesname.
Go to Data Analysisof excelandselectcorrelation.
At Correlation:Inputrange- selectall companiesReturnvalue
Output range-select a blank sheet……Press “ok”.
Furnished all value at column and row and copy & paste with Transpose at Table: 2 correlation
matrix.
Step: 5
Table: 3 Covariance Matrix
Copy & paste companies name
Go to Data Analysis of excel and select covariance
At covariance: Input range- select all companies Return value
Output range-select a blank sheet……Press “ok”.
Furnished all value at column and row and copy & paste with Transpose at Table: 2 correlation
matrix.
Step: 6
Table 4: Monthly Standard Deviation and Average Return with Equal Weight
Copy & paste companies name.
2. Copy Standard Deviation and Average Return and paste with Transpose.
Weight: =1/7
Then write sum 1
E (Rp): {=MMULT (TRANSPOSE (select all Weight value), Select Average Return value).
SD: {=SQRT (MMULT (MMULT (TRANSPOSE (select all Weight value), select all Return value),
select all Weight value)}.
SR: E (Rp)/SD
Step: 7
Table 5: Monthly Standard Deviation and Average Return with Varying Weight
Doing same methods as like Table 4.
Step: 8
Risk & Return
Calculate Minimum Risk and Return value
Go to Data Analysis of excel and open Solver.
At Solver- set Target sell: SD (from Table 5)
o Select option Min
o Guess: all Weight Value (from Table 5)
o Cell Reference: 1 (sum value from Table 5) = constraint: 1
Press “Solve” and get the minimum Risk and Return value.
Copy & paste the value of Return column of Return & Risk table.
Calculate Maximum Risk and Return
Go to Data Analysis of excel and open Solver.
At Solver- set Target sell: SR (from Table 5)
o Select option Max
o Guess: all Weight Value (from Table 5)
o Cell Reference: 1 (sum value from Table 5) = constraint: 1
Press “Solve” and get the minimum Risk and Return value.
Copy & paste the value of Return column of Return & Risk table.
Assuming and putting some Return value on Return column before and after the Minimum &
Maximum Return.
Calculate Risk value of those assuming Return value
Again open Solver- - set Target sell: SR (from Table 5)
o Select option Max
o Guess: all Weight Value (from Table 5)
o Cell Reference: 1st
Return value = constraint: E (Rp).
Press “Solve” and get the risk value against the return value.
3. To be continuing the Solver formula ( only change the Return Value at cell Reference) to get all
Risk value against the Assuming Return value
Step: 9
Select a graph and put the all Risk and Return value on the graph.
