Financial Research Project

1. Trading
Strategies
ADRIAN ALEJANDRO MUNIZ

2. Do you know how to invest your
money?

3. How much does asset allocation
affect your portfolio’s overall
return? Risk-assessment and time
horizon?

4. Hypotheses:
H0: μBonds = μEquities
vs.
Ha: μBonds ≠ μEquities
&
H0: σBonds/σEquities = 1
vs.
Ha: σBonds/σEquities ≠ 1

5. Significance Level:
5%
Limitations:
- Data (9.10.2010)
- Risk-assessment & Time
Horizon

6. Portfolio Weight
• Aggressive Portfolio (20% Bonds & 80%
Equities)
• Benchmark Portfolio (40% Bonds & 60%
Equities)
• Conservative Portfolio (80% Bonds & 20%
Equities).

7. Portfolio Content
• VOO (Vanguard S&P 500 index fund)
• ^TNX (10-year treasury bond rate)
Based off of CAPM model
Specific risk can be removed or at least mitigated by diversification

8. Descriptive Statistics

9. All the questions are
based on a scale of
1-10, 10 being the
highest and 1 close
to never
• On a scale of 1-10, how much
do you enjoy to gamble
• On a scale of 1-10, how often
do you act impulsively
• On a scale of 1-10, how would
you rank your impatience

10. What is your time horizon?

11. Based on input, what does your
portfolio look like?
• AP Average Annualized
Return : 11.7%
• BP Average Annualized
Return : 8.6%
• CP Average Annualized
Return : 2.4%

12. Hypothesis testing (hypothesis 1)
• Average daily return of equity portion is
0.0593%
• Average daily return of bond portion is -0.0027%
• Spearman Rank Correlation Coefficient: 40.38%
Fail to reject the null hypothesis (for hypothesis 1) based off the paired t-test
result being larger (1.27) and the critical value for the test being smaller (1.07),
also the probability of this hypothesis happening was 20% (based off of p-value
of the paired t-test) which is higher than the significance level of 5%

13. Hypothesis testing (hypothesis 2)
• F-Test (Equality of Variance): 6.06
• farther the ratio deviates from one, the stronger
the evidence for unequal population variances
becomes more relevant
initial null hypothesis for (Hypothesis 2) can be rejected since the correlation
between the two portions of the portfolio is insignificant

14. Conclusion
Overall, the return trade-off based off of asset allocation within a portfolio has a
significant contribution to overall return, but the portion of risk-assessment and time
horizon can alter this significance
• based off of failing to reject null hypothesis 1 and rejecting null hypothesis 2
• statistical significance of this study is that 20% of the time the contribution
to the overall return for a portfolio will be because of the return trade off based
off of asset allocation
• this study only takes three portfolios into account and places clients
accordingly based off input
• economic significance of this study is to understand how much of an impact
asset allocation can have on a portfolio and its contribution to your portfolios
overall return.

15. Contact Info
• If you would like the python file to play with different risk-assessment scores,
time horizon, or different types of portfolio, let me know
• Send me an e-mail and I’ll be more than happy to send it
• It will also be on my LinkedIn
Adrian Alejandro Muniz
Business Administration (B.A.'20)
Emphases: Finance, Marketing, & Management
University of California: Irvine | Paul Merage School of Business
M: (626) 347 0842