For this post, you will graph five portfolios using the two securities you own in with different weights of each security in the five portfolios.
The client has asked you to explain how to choose the weights for a portfolio consisting of only the two securities you purchased in Week 2 (Apple and Microsoft)
For this post, you will graph five portfolios using the two securities you own in with different weights of each security in the five portfolios. Plot the portfolio risk on the x-axis and the portfolio expected returns on the y-axis.
To generate your portfolio data, use the website Portfolio Visualizer (Links to an external site.):
- From this website, go to the Tools menu and select Asset Correlations.
- On the Asset Correlations screen enter the two ticker symbols for your two companies, separated by a comma.
- Input a 5-year period through the most recent date.
- Choose Monthly Returns.
- Click on the button “View Correlation.”
- From this screen gather the following data points: the correlation between the two securities, the annualized return for each security, and the annualized standard deviation for each security.
Input the data from Portfolio Visualizer on the spreadsheet Expected Return and Standard Deviation Spreadsheet Download Expected Return and Standard Deviation Spreadsheet to generate your graph.
On your graph, include the following:
- Create an arc that approximates the full range of risk-return opportunities available given these two securities (the attainable set). See Figure 8-1 (pp. 197–198) for an example of a graph of the attainable set of portfolios.
- Label on the graph the efficient frontier.
- Label the minimum variance portfolio.
- Label the different portfolios A through E.
In your initial post,
- Post your graph.
- Include a table with the data used to create the graph; the table should include the weight of the securities in each portfolio, the portfolio standard deviation, and the portfolio risk.
- Explain the graph within the context of Markowitz principles.
- Identify what portfolios risk-averse investors should be interested in.
- Identify what portfolios in the attainable set are inferior or dominated.
Use sources if needed
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