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Risk, Return, and the Historical RecordThroughout the semester, we are going to learn about the benefits of diversification, which is how we can

July 4, 2024

Risk, Return, and the Historical Record

Throughout the semester, we are going to learn about the benefits of diversification, which is how we can greatly reduce the uncertainty around our expected returns. To get started in the stock market game, make sure your portfolio contains
at least ten assets, either stocks or ETFs.

On the second page, you find the mutual sheet that we started to discuss in lecture. We are going to focus on the sections highlighted in blue . For this homework assignment, you are going to study the ten largest holdings of your portfolio.

To prepare, go to finance.yahoo.com and enter the tickers for the ten largest holdings in your portfolio. For each of them, click on “Historical Data”, indicated on the screenshot below.

Select the time period from June 30, 2021, to June 30, 2023. Download the data and open it in Excel. Using the column “Adj. Close”, compute the daily returns on day
t as

where is the stock price on that day and is the stock price on the day prior.

Problem 1.

From the daily data, compute the expected
annual return and
annualized standard deviation of each stock. Assume a risk-free rate of per year to find the Sharpe ratio.

Problem 2.

Identify the sector of each of your investments, report the YTD return (the return from Jan 1 until today) and the weight in your portfolio.

Problem 3.

Find the overall sector weightings of your portfolio using the info from Problem 2.

Submit your work as an Excel File –

Make sure it’s well organized and readable!

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