Computation of weights of the individual stocks

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Computation of Weights of the individual stocks, Expected returns, Variance-covariance matrix and volatilities

Tangency Portfolio Problem. From finance.yahoo.com collect 10 years of monthly returns for four stocks. Sample of 10 years of monthly data should be a pretty reasonable estimate of expected returns, variances, and covariance.

Using this data, compute the tangency portfolio. You have to report

i.Weights of the individual stocks in the tangency portfolio;

ii.Expected returns and volatilities of the individual stocks;

iii.Variance-covariance matrix;

iv.Expected return and volatility of the tangency portfolio;

v.Sharpe ratio of the tangency portfolio;

Hint: using vector formulation, it is very easy to compute portfolio\'s variance! If ω is the N X 1 vector of portfolio weights and Ω is the N X N variance-co variance matrix, then the portfolio variance is σp2 = ω\'Ωω and portfolio volatility is σp = (ω\'Ωω)1/2.

Reference no: EM1315434

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