Stocktrak - investment planning

Stock-Trak Portfolio Simulation Project

1. Basic Performance Analysis

Changes in Portfolio Values:

In the period from November 17, 2018 to November 27, 2018, our portfolio’s value increased from $1,000,000.00 to $1,003,854.80 USD. Our portfolio has an absolute gain of $3,854.80 and a total return of 0.54% (equals annualized return of 2.40%).

Comparison between Our Portfolio and Benchmark Performance:

I used S&P500 as our benchmark. During the same time period, S&P500 increased from 1,173.97 to 1,215.65 points. An absolute increase of 41.68 points indicates a return of 3.55% (equals annualized return of 19.14%). Comparing to S&P500, unfortunately, our portfolio largely underperformed than the market.

Comparison with Our Peers:

Among the total 39 teams established by our peers, our team ranked in the 21st place. The best performer had an ending balance of $1,186,012.83 USD with a total return of 18.47%, while the worst performer ended up with -$149,876.35 USD and a return of -114.89%.

2. Diversification Analysis

In order to measure our diversification, I used the correlation between the return of our portfolio and that of S&P500. Thus I got a diversification return of 0.87. The relatively high figure implies a relatively high degree of diversification for our portfolio because it was affected by 87% of systematic risks, which was out of our control.

Compared to other teams, the highest one had a correlation of 0.96 and the lowest one had that of -0.51, with a mean of 0.52. This range indicated that I did Ill on diversifying our portfolio and therefore avoid the unsystematic risks.

3. Risk-Adjusted Performance Analysis

Treynor Ratio:

Our Treynor Ratio was 0.0088 and the S&P500 had that of 0.1910. This ratio measures the portfolio’s return based on systematic risk and earned in excess of that which could have been earned on a riskless investment, in our assumption, 10 year Treasury Rate.

Among the total 39 portfolios, our team’s Treynor Ratio ranked in the 20th place, showing that I exposed to a relatively high degree of systematic risk. The Treynor Ratios Ire in the range from 9.12 to -41.15, with the average of -1.40.

Sharpe Ratio:

Our Sharpe Ratio was 0.03 and the S&P500 was 0.83. Because the Sharpe Ratio tells us whether a portfolio’s return is because of the smart investment decision or the excess risk, it’s generally considered as an important indicator. It measures total risks, therefore the greater a Sharpe Ratio of a portfolio, the better its risk-adjusted performance has been.

Our Sharpe Ratio rated in the 23rd out of 39 teams. They spread from the highest 2.53 to the lowest -4.33, with the mean of 0.98. However, one-point worth mentioning was our Sharpe Ratio was ranked in the 1st place during the simulation.

Jensen’s Alpha Measure:

Our Jensen’s Alpha Measure was -0.0013. This factor measures the abnormal return of our portfolio and therefore the unfavorable negative number indicated our portfolio’s poorer performance than the market premium.

Our Jensen Measure ranked in the 20th place, while other results distributed from 0.0170 to -0.2056, with a negative average of -0.0076, implying that majority of portfolios underperformed than the market did.

Information Ratio:

Our Information Ratio (IR) was -0.67. This information ratio identifies investors managing ability to generate the excess return relative to the benchmark and the consistency of the profitability. Despite of the high IR could be resulted by high return in the portfolio, a low return of the index, or a low tracking error, a higher IR is still preferable because it means that the investor is more likely to be consistent.

Our Information Ratio rated in the 23rd. Others are in a range of 2.35 to -4.27. The average was 0.42, which was also better than our negative result

Overall, our portfolio has average ratios and measures, which usually varied from 20th to 30th among our peers. I did best and ranked highest on Jensen Ratio.

4. Performance of Individual Stocks:

I selected four holding-oriented equity securities and tracked their Likely performance for analyzing their attributions to our portfolio:

Source: www.google.com/finance

From the table and graph above, I could clearly see that the best performer in our portfolio was BP with a 16.54% total return, while the worst one was Kraft with a total return of 1.58% during the holding period. Among all of the four holding-oriented securities, the only one underperformed than the benchmark, namely S&P500, was Kraft. All other three stocks had much better return than the S&P500 of 3.64%. Overall, these observe actually proved that our selection approach for holding-oriented stocks was successful.

Conclusion

What I did successfully:

Generally speaking, the first class I learned from this three-month stock simulation is how to select stocks and establish a portfolio wisely and systematically. From initially setting up the investment policy, I explored how to select and allocate the individual securities, how to diversify our portfolio to minimize the risks, and how to find the best return-risk trade-off for our portfolio. Through this procedure, I really needed to use all financial knowledge I have learned before, including fundamental analysis, ratio analysis, technical analysis, free cash flow analysis and so on.

Another significant difference is that I did pay a lot attention to follow macroeconomic and financial news, as Ill as particular news about our securities. It brought us more quickly and sensitive observe ability to what happened all over the world than before.

In addition, I did Ill on diversifying our portfolio and minimize the systematic risks. Since I established an investment policy in details that I strictly implemented, I had everything under control and didn’t expose to any extraordinary risks out of our expectation.

What I would improve in the future:

Unfortunately, I did beat the benchmark performance finally, although I once did Ill and ranked better during the trading period. Firstly, I had to admit that sometimes I have delayed trading and tracking our portfolio, resulting in great losses on some particular stocks.

Interestingly, I also found that people might not that know themselves on risk tolerance. Whatever from our investment policy or our trading strategy and results, our portfolio is somewhat risk-averse, so I Ill diversified our investment and always holding a relatively high level of bonds and mutual funds, as Ill as some excess cash. Interesting finding is that, however, our group members got all high-risk-tolerance ranking in the survey that I finished on class.

References

“The eurozone debt crisis just won't quit”, retrospect from: http://finance.yahoo.com/news/eurozone-debt-crisis-just-wont-211300837.html

“StanChart warns on China’s local-government debt”, retrospect from:

http://www.marketwatch.com/story/stanchart-warns-on-chinas-local-government-debt-2011-09-20

Data, retrospect from www.yahoo.com/finance

Data, retrospect from www.reuters.com/finance