Finance Segment 3

Summer 2021

FIN 430 Research Project Segment 3: Portfolio Performance Measurement

Objectives:

You are anticipated to evaluate your stock portfolio from the MarketWatch Stock Trading Game.

To-do list

1. Download the daily returns of your MarketWatch simulated portfolio.  Go to https://www.marketwatch.com/game/fin430-summer2021  Click “Portfolio” in the main navigation bar.  Click the “Download” by “Portfolio Performance”.

2. Download the daily returns of S&P 500 Index.  Go to https://www.marketwatch.com/investing/index/spx  Click “Historical Quotes”.  Set “Start Date” and “End Date” the same as the first and last date of your

portfolio.  Make sure that the “Result Frequency” is “Daily”.  Click “Update Results” and download.  Calculate the daily returns of S&P 500 using the “Close” price.

3. Evaluate the performance of your MarketWatch portfolio.  All the performance measures should be calculated based on daily returns of the

portfolios.  Use performance metrics include but are not limited to Sharpe ratio, M-square,

Treynor measure, Alpha, and Information ratio.  See Appendix 1 for step-by-step instruction.

4. Repeat the Step 1 to download the portfolio returns of one other student and compare you portfolio performance with him/her.  Conduct the comparison analysis and make investment recommendations.

5. Write a report summarizing your findings.  See Appendix 2 for the instructions of the final report.

Summer 2021

Appendix 1 Evaluate portfolio performance.

1. Daily risk-free rate can be collected from https://fred.stlouisfed.org/series/DTB3. Set frequency as daily. Divide the downloaded T-bill rate by 36,500 because the rate is annualized and is only the numerator part of the percentage.

2. Calculate the performance metrics and show them in a table like the following: Avg.

Return Ave.

Excess Return

St. Dev. β Sharpe ratio

Treynor ratio

Alpha M2 Information ratio

Your Portfolio

Peer Student Portfolio

S&P 500 1.00 n/a n/a n/a

3. Discuss the performance metrics, emphasizing on comparing your portfolio and your peer student’s portfolio.

Appendix 2 Recommended Report Outline and Rubric.

Part 1. Introduction

• Briefly summarize your trading strategy for the MarketWatch Stock Trading Game.

Part 2. Investment Opportunities

• Plot the cumulative growth of your portfolio, your peer student’s portfolio, and S&P 500 Portfolio. S&P 500 Portfolio will be hypothetical portfolio that starts with $100,000 and has been invested in S&P 500 index. You will need the daily return of S&P 500 index to calculate the growth.

Part 3. Performance and Recommendations.

• Tabulate the performance metrics. • Discuss the performance and make investment recommendations.

Part 4. Summary.

• Summarize your MarketWatch Stock Trading Game.

Rubric: for each part, I will grade based on the following part criteria: completeness 5pt, informativeness 5pt, comprehensiveness 5pt, language 5pt. The highest grade will be 20 pts.