Finance 125.740 OTIS Report

The assignment requires students to create a report on their finance portfolio's performance, including calculations of various metrics such as gross return, active return, excess return, standard deviation, beta, tracking error, Sharpe ratio, Treynor ratio, and Jensen ratio. The report should include a table with annualized performance measurements and a graph showing the portfolio's performance over time.

Finance 125.740
Semester 1, 2017
OTIS REPORT
Instructions:
You should have a cover page, 1 page of performance numbers (as shown below), and 2½ - 5
pages of discussion (you do not need to show your work for calculations).
Make sure your name is on every page, in a header or footer.
Page format should be single-spaced lines, and double-sided printing. Use section headings as
shown below.
In the discussion section, be clear and concise, using proper English. Verbosity will count
against you, as will spelling / grammar errors and unintelligible sentences.
Make the effort and take the time to make sure your work is better than "just presentable".
Some of the information required for this report can be obtained directly from OTIS, though for
TE and the measures against the Class Portfolio you'll have to do some extra calculations.
Technical Details:
All performance numbers must be reported in Annualized terms (assume 250 trading days in the
year). Do not report daily numbers.
All performance numbers must be reported to at least 3 significant digits.
For example, r = 0.334% or r = 33.4 bps, or IR = 1.56. Do not round 1.74 to 2; and do not report
r = 0.003.
In your calculations, however, carry out each step with as many decimal places as you can (4 or 5
at absolute minimum). Otherwise, interim rounding may cause your final answer to appear
incorrect.
Data for the daily values of the Class Portfolio can be found on OTIS under "Rankings", then
"Performance Value Data".
A possible problem in OTIS
There has been an issue with how OTIS reports the Day 1 value and/or return, which I’ve been
told would be fixed by the time our 2017 classes begin.
So far (as of 3 May 2017) that doesn’t seem to have been fixed, but at least all students seem to
be reported the same. So what we’ll do this semester is just use the data as it is downloaded from
OTIS.
You may see references elsewhere to ‘Day 0’ – that was the work-around I’ve used in previous
semesters. If you see that somewhere, just ignore it. In the data you get from OTIS, the first
portfolio value will be Day 1.

Name ___________________________
For the Sharpe, Treynor and Jensen calculations you will need the risk-free rate. You can get the
daily numbers from OTIS on the Rankings page for Sharpe. Download the spreadsheet (at the
bottom of that page) "How was the Sharpe Ratio for my portfolio calculated." That spreadsheet
has the daily risk-free rate numbers (those are the rates I will use to calculate these stats).
When you calculate your Beta, beware you may get odd numbers (like -4.5 or 126). As you
know, portfolio betas should be somewhat close to 1, so that may seem like an error. However,
with only a few observations (as we have in these portfolios), strange numbers can occur. So,
check your work carefully, but it may be correct. If after checking your work the beta looks
correct, report that and use it for the Treynor and Jensen measures (and don't forget there are two
Benchmarks – Russell 1000 and Class Portfolio - so you'll have two betas).
There are two versions of the Sharpe ratio; the original which assumed a constant Risk-free rate,
and the revised (modern) version, which allows the risk-free rate to change daily. Use the modern
version (which we went over in class).
Report “Excess Return” and “Active Return” as we have discussed in class.
The requested Std Dev is the std(Excess Return), therefore the number used in the Sharpe ratio.
Tracking error must be calculated using the industry version, as we have done in class. As of this
writing OTIS reports two versions - the "Long Term Tracking Score", and the "Daily Tracking
Score". Their Daily Tracking Score is the industry standard that we use. The TE reported for
your portfolio against the Russell1000 will probably be close to correct, but may not be exact,
due to the issue with Day 1 and Day 0 (noted above). So, you should calculate this yourself (and
of course you have to calculate TE against the Class Portfolio).
The required Graph is only for my reference -- it doesn't matter whether you do it in returns (as
shown in the template), or in Portfolio Values (as shown in the OTIS performance value graph
page).
For all calculations requiring standard deviation, variance, or covariance (TE, Sharpe, Beta, etc),
use the population version of the formula. (e.g. if using Excel, that means using function
STDEVP, rather than STDEV.)
The report is due 9 June, 2017, 1pm.
You must submit the hardcopy in the provided box outside the main office (near my office).

Name ___________________________
Main Portfolio
Performance Measurements (annualized):
Be clear about whether you are reporting in decimal, %, or basis points.
Russell1000 as bench Class Portfolio as bench
Gross return _______
Active return _______ _______
Excess return _______
Std Dev (excess) _______
Beta _______ _______
TE _______ _______
Sharpe _______
Treynor _______ _______
Jensen _______ _______
IR _______ _______
Others? (if you wish, you may report other metrics you have found in your reading)
_______ _______
_______ _______
Graph*
Relative Portfolio Perfromance
0%
5%
10%
15%
20%
1 2 3 4 5 6 7 8 9 10
Week
R e tu r n Student
Class
S&P 500
* graph can be directly from OTIS. You don’t need to create this yourself. (and will be
Russell1000 this semester, not S&P 500)

Name ___________________________
Discussion
There can be a lot of overlap between these sections. It is my intent that you try to tease apart the
difference between strategy and performance.
Strategy
½ - 1 page
Describe your strategy and how it evolved/changed during this assessment period (if it did).
Portfolio Performance discussion, including specific performance of
your Strategy
About a page
Take the perspective of a portfolio manager wishing to improve the chance for a big bonus.
Describe/assess your portfolio performance. Use specific information from your portfolio - do
not embellish with trivia.
Feel free to use evaluation methods or criteria discussed in the papers or textbook not mentioned
above.
NOTE:
Please do not simply repeat info that is in the portfolio metrics table. (E.g. “My Shape ratio was
0.9, compared to the Treynor of 1.2 and Jensen of 1.5 …”)
I am interested in *interpretation*, not regurgitation.
So something like, ‘my Information ratio of 1.5, relative to the Class portfolio, indicates that my
portfolio outperformed …’
Please also do not discuss/explain performance technique or theory; this report is for an audience
assumed to be familiar with these methods.
Optimum portfolio
About ½ - page + table of weights
Using what you learned about your strategy and Core in the Main portfolio, what would be the
optimum portfolio were you to rebalance now? Discuss.