2012Fall7646 Homework 1
The purpose of this assignment is to introduce you to historical equity data, and for you to get started having opinions about equities.
Part 1: Paper Trade
- Find an online broker, and establish a "paper trading account" with them. The purpose of this account is for you to document your choice of equities you might invest in. And to document the performance of your portfolio. Suggestions for brokers or other sites you might do this with are on piazza.
Part 2: Simulate a Buy and Hold Portfolio for 2011
- Select a portfolio of 4 equities (stocks and ETFs only) to invest $1M into ($100K is also OK if the website limits you in that way).
- Simulate the performance of your portfolio for the calendar year of 2011. Do this using excel (or libre office). Here are some details of how to do that:
- Assume: You allocate some amount of value to each equity on the first day. You then "hold" those investments for the entire year.
- Use adjusted close data from Yahoo! finance for each of your equities (details in class).
- Again, be sure to use adjusted close!
- Sort the data based on date (earliest to most recent), and align the data for each of your equities in rows corresponding to dates.
- Create an additional column for each equity in which you will keep the total return on your investment in that equity. In the first cell, enter the amount of your $1M investment for that equity. Then for each row after that, calculate the cumulative value of your investment in that equity all the way to the last day.
- Create a "total portfolio value" column in which you sum the daily values of all your portfolio components.
- Create a "daily return" column in which you calculate the daily return of your portfolio.
Part 3: Assess the Quality of your Portfolio:
- Compute, and indicate prominently:
- The annual return of your portfolio.
- The daily return of your portfolio.
- The average daily return of your portfolio.
- The standard deviation of the daily return of your portfolio.
- The Sharpe Ratio of your portfolio (based on daily returns).
- Also, for comparison, calculate each of the above quantities for SPY over the same period.
- Turn in files as attachments by t-square. Please do not "zip" your files together first; just submit separate files as named below:
- screenshot.pdf A screenshot of your brokerage portfolio showing that you have "purchased" a 4 equity portfolio.
- spreadsheet.pdf A printout of your spreadsheet that shows your assessment of your portfolio for the 2011 calendar year.
- spreadsheet.xls A copy of your original spreadsheet.
Example of what spreadsheet.pdf should look like, for the most part:
How to submit
Go to the t-square site for the class, then click on the "assignments" tab. Click on "add attachment" to add your three files. Once you are sure you've added both files, click "submit."