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Portfolio Project Case Solution & Answer

Step 2

a).

The returns shown in the previous step have been pooled using paste special and values function in the excel sheet.

b).

The correlation matrix is shown below:

Correlation Matrix
  S&P500 Closing Adjusted Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)
S&P500 Closing Adjusted 1.000000 0.491776 0.484675 0.630334 0.499990
Apple (APPL) 0.491776 1.000000 0.163697 0.432052 0.186602
Coca Cola Co (KO) 0.484675 0.163697 1.000000 0.416307 0.339186
CostCo Corp (COST) 0.630334 0.432052 0.416307 1.000000 0.490847
Dollar General (DG) 0.499990 0.186602 0.339186 0.490847 1.000000

 

c).

The covariance matrix is shown below:

Covariance Matrix
  S&P500 Closing Adjusted Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)
S&P500 Closing Adjusted 0.000208 0.000208 0.000128 0.000213 0.000315
Apple (APPL) 0.000242 0.001159 0.000102 0.000344 0.000277
Coca Cola Co (KO) 0.000128 0.000102 0.000337 0.000179 0.000272
CostCo Corp (COST) 0.000213 0.000344 0.000179 0.000547 0.000501
Dollar General (DG) 0.000315 0.000277 0.000272 0.000501 0.001904

 

d).

The expected returns for each of the stocks using CAPM are as follows:

Risk Free Rate 2%
Market Risk Premium 8%
Expected Returns
Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)
11.28% 6.93% 10.18% 14.10%

e).

All the general statistics are shown in the previous part. In addition to them, we have also computed the mean weekly returns and the standard deviation of each of the four stocks. These are shown in tables below:

Stocks S&P500 Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)
Mean Returns 0.34% 0.42% 0.04% 0.17% 0.10%
Standard Deviation 1.46% 3.44% 1.85% 2.36% 4.41%

 

Step 3

a).

The global minimum variance portfolio has been computed in the excel sheet using the Solver. The results are shown below:

GLOBAL MINIMUM VARIANCE PORTFOLIO
  Expected return Standard Deviation     weight
Apple (APPL) 24.53% 24.79%   Apple (APPL) 12%
Coca Cola Co (KO) 1.9% 13.4%   Coca Cola Co (KO) 67%
CostCo Corp (COST) 9.0% 17.0%   CostCo Corp (COST) 21%
Dollar General (DG) 5.2% 31.8%   Dollar General (DG) 0%
        sum weights 100%
           
           
Correlation matrix          
           
  Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)  
Apple (APPL) 1 0.163697017 0.432051622 0.18660152  
Coca Cola Co (KO) 0.163697017 1 0.41630665 0.339186256  
CostCo Corp (COST) 0.432051622 0.41630665 1 0.490847279  
Dollar General (DG) 0.18660152 0.339186256 0.490847279 1  
           
Covariance matrix          
  Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)  
Apple (APPL) 0.0615 0.0054 0.0182 0.0000  
Coca Cola Co (KO) 0.0054 0.0179 0.0095 0.0000  
CostCo Corp (COST) 0.0182 0.0095 0.0290 0.0000 portfolio variance
Dollar General (DG) 0.0079 0.0184 0.0495 0.0000 1.46%
  0.002 0.010 0.003 0.000  
           
        Portfolio standard deviation 12.10%
        Portfolio Expected Return 6.01%
        Sharpe Ratio 0.50

b).

We have generated 6 minimum variance portfolios with returns greater than that of GMVP. These are shown below:

  Apple (APPL) Coca Cola Co (KO) CostCo Corp (COST) Dollar General (DG)        
Expected Annual Returns 24.53% 1.88% 8.96% 5.21%        
Standard Deviations 24.79% 13.37% 17.04% 31.77%        
Weights         Total Weight Portfolio Return Portfolio SD Portfolio Variance
P1 25% 25% 25% 25% 100% 10.14% 21.74% 4.73%
P2 31.00% 23.00% 23.00% 23.00% 100% 11.29% 21.99% 4.83%

This is just a sample partical work. Please place the order on the website to get your own originally done case solution.

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