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Project2FIN624Fall18.xlsx
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Sheet1

Project 2 32 - 45 points.
Historical Returns by Asset Class and Investment Period
1970-2017 Long Term 2008 - 2017 Intermediate 2013 - 2107 Short term
Large Stocks 10.50% 8.50% 15.80%
Small Stocks 12.60% 9.40% 15.00%
Bonds 8.30% 6.10% 3.20%
International Stocks 8.90% 1.90% 7.90%
Cash 4.80% 0.30% 0.20%
Source: Morningstar
Var/Cov
Large stocks Small Stocks Bonds International Stocks Cash
Large Stocks 0.02890 0.03060 0.00000 0.02582 0.00000
Small Stocks 0.03060 0.05063 0.00000 0.02930 0.00000
Bonds 0.00000 0.00000 0.01440 0.00000 0.00000
International Stocks 0.02582 0.02930 0.00000 0.04709 0.00000
Cash 0.00000 0.00000 0.00000 0.00000 0.00123
Note: For purposes of this exercise, the long-term asset variance was used along with the following asset correlations. Assets correlations change over time .
For example of bond correlation with stocks see
Large stocks Small Stocks Bonds International Stocks Cash
Large Stocks 1 0.8 0 0.7 0
Small Stocks 0.8 1 0 0.6 0
Bonds 0 0 1 0 0
International Stocks 0.7 0.6 0 1 0
Cash 0 0 0 0 1
http://innovawealth.ca/PDFs/2013.Pimco.Stock-Bond-Correlation-Analysis.pdf