C/W TITLE Construction, Analysis and Performance Evaluation of an equity portfolio ASSESSMENT CRITERIA The assessment is based on the successful completion of the following tasks as they are described in more detail in the sequel: • Scholarly presentation, including clear and appropriate referencing • Initial Portfolio Selection. Data and information collection on the selected stocks. • Stock and Portfolio Analysis. • Portfolio management and restructuring based on well-justified arguments and techniques. • Portfolio performance evaluation. Issues taken into account: • Mature grasp of relevant ideas and concepts • Clear, focused and coherent arguments • Critical and analytical approach to theories and practical examples Marks are allocated equally over each task. DETAILED DESCRIPTION Each student should construct a portfolio consisting of any three stocks listed in the New York Stock Exchange. An amount of USD 100.000 must be EQUALLY ALLOCATED across the three stocks, without applying any transaction fees, at, 1 January 2017 closing prices. The student should deliver a report consisting of the following: 1. The number of shares purchased at (01/01/2017) closing prices and a list of monthly adjusted closing prices starting from 01/01/2017 up to 01/01/2022 (61 observations) and the relevant monthly returns (60 observations). 2. The risk and the (average and total) rate of return of each stock and your portfolio. Compare the risk of such a portfolio with those of each individual stock and comment on your result. Does the portfolio succeed in risk reduction? 3. The covariance and correlation across stocks. Briefly comment on results. 4. Choose two additional alternative weighting schemes for your portfolio (e.g. 50% in stock A, 25% in stock B and 25% in stock C). Compute again the historical (total and average) return and risk of the portfolio under these schemes and critically comment on your results. 5. Draw and critically comment on the relevant Efficient Frontier with at least the three different weighting schemes (the more alternative weighting schemes, the better result you’ll get). 6. The benchmark index and the rationale for its selection. 7. The security market line and the beta for each stock and your portfolio. 8. How do your beta calculations compare with those of the published sources? Explain. 9. How do the firms compare when ranked by beta as opposed to standard deviations? Comment. 10. A description and critical discussion of the performance of your portfolio (using the appropriate ratios). 11. Obtain the current P/E ratios of your three stocks. Compare to the industry average and/or main competitors. Analyze any potential differences. Do you think your companies are overvalued or undervalued based on the earnings multiple? 12. The final part of the assignment involves a restructuring of the overall portfolio by selling and buying any stock they wish (note: no further calculations are necessary). The students should justify their trades by arguments drawn from the relevant theory. In the analysis students should use graphs and tables in order to make the exposition clear. All calculations should be explicit in a worksheet in appendix and not borrowed by any other source (e.g. published betas or correlation coefficients). The spreadsheet should be sent to lecturer by email. Additional guidelines will be provided by the instructor during the tutorials. Students are expected to follow the below report structure (indicative): •Executive Summary • Table of Contents • Introduction and Problem Statement • Risk-Return analysis of the selected stocks and equally weighted portfolio • Covariance-Correlation analysis • Alternative weighting schemes analysis • Efficient Frontier analysis • Beta calculations and analysis • The security market line • A critical discussion of the portfolio performance • Earnings multiple analysis • Portfolio Restructuring • Conclusions • Bibliography – you must utilize the Harvard Reference System (SEE LINK PROVIDED) • Appendices (tables, graphs, etc.)
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