Constructing a Tracking Portfolio using 12 Stocks and ASX200 Index

Report

TABLE OF CONTENTS
CHAPTER 1 : INTRODUCTION.......................................................................................................................1
CHAPTER 2 : ANALYSIS OF 12 STOCKS AND INDEX......................................................................................2
CHAPTER 3 : PORTFOLIO CONSTRUCTION...................................................................................................6
CHAPTER 4 : PERFORMANCE OF THE TRACKER PORTFOLIO........................................................................9

CHAPTER 1: INTRODUCTION
The purpose of this report is to investigate the different methods of constructing a
tracking portfolio using the 12 stocks below and the ASX200 index.
Code Company
CBA Commonwealth Bank
BHP BHP Billiton Limited
CSL CSL Limited
WBC Westpac Banking Corp
ANZ ANZ Banking Group Limited
NAB National Aust. Bank
WES Wesfarmers Limited
MQG Macquarie Group Limited
WOW Woolworths Group Limited
TLS Telstra Corporation
WPL Woodside Petroleum
RIO RIO Tinto Limited
In Chapter 2, the 12 stock prices and index from the sample data are transformed into
weekly returns. The data is then analyzed to determine the annualized returns, variance
covariance matrix and beta.
In Chapter 3, three portfolios out of the 12 stocks that track the ASX200 index are
constructed and compared using three different methods.
In Chapter 4, the performance of the tracker portfolio is analyzed after 12 months to
determine how close it follows the index.
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CHAPTER 2: ANALYSIS OF 12 STOCKS AND INDEX
The table below shows the weekly returns annualized expected returns, variance and
standard deviation for the 12 stocks and ASX200.
Weekly Returns Annual Returns Annual Variance
Annual Standard
Deviation
CBA 0.0002% 0.0103% 3.7387% 19.3357%
BHP -0.0477% -2.4797% 11.2708% 33.5721%
CSL 0.4376% 22.7564% 3.9468% 19.8665%
WBC 0.0015% 0.0755% 4.8913% 22.1163%
ANZ -0.0189% -0.9828% 5.2796% 22.9774%
NAB 0.0384% 1.9977% 4.9629% 22.2777%
WES 0.0238% 1.2355% 3.0230% 17.3866%
MQG 0.2725% 14.1695% 5.4349% 23.3128%
WOW -0.1589% -8.2626% 4.4082% 20.9957%
TLS -0.1882% -9.7869% 2.9918% 17.2969%
WPL -0.1701% -8.8427% 5.4856% 23.4215%
RIO 0.1457% 7.5770% 8.6946% 29.4866%
ASX200 0.0443% 2.3019% 1.8244% 13.5072%
The table below shows the covariance variance matrix for the 12 stocks
CBA BHP CSL
WB
C ANZ NAB WES
MQ
G WOW TLS WPL RIO
ASX
CBA 3.74% 2.95% 1.12% 3.41% 3.50% 3.26% 1.23% 2.67% 1.75% 1.03% 2.06% 1.97% 2.11%
BHP 2.95% 11.27% 0.82% 3.97% 4.09% 3.91% 2.23% 3.06% 2.82% 0.68% 4.66% 8.35% 3.15%
CSL 1.12% 0.82% 3.95% 1.28% 0.91% 1.15% 1.29% 1.44% 0.91% 0.73% 0.86% 0.54% 1.16%
WBC 3.41% 3.97% 1.28% 4.89% 4.31% 4.02% 1.73% 2.92% 2.19% 0.92% 2.57% 2.76% 2.52%
ANZ 3.50% 4.09% 0.91% 4.31% 5.28% 4.29% 1.39% 3.02% 2.19% 0.65% 2.64% 2.98% 2.52%
NAB 3.26% 3.91% 1.15% 4.02% 4.29% 4.96% 1.79% 3.38% 2.66% 0.97% 2.54% 2.68% 2.52%
WES 1.23% 2.23% 1.29% 1.73% 1.39% 1.79% 3.02% 1.15% 2.32% 1.09% 1.85% 1.50% 1.47%
MQG 2.67% 3.06% 1.44% 2.92% 3.02% 3.38% 1.15% 5.43% 1.92% 0.55% 1.92% 1.54% 2.10%
WOW 1.75% 2.82% 0.91% 2.19% 2.19% 2.66% 2.32% 1.92% 4.41% 1.09% 2.33% 1.70% 1.78%
TLS 1.03% 0.68% 0.73% 0.92% 0.65% 0.97% 1.09% 0.55% 1.09% 2.99% 0.92% 0.60% 0.94%
WPL 2.06% 4.66% 0.86% 2.57% 2.64% 2.54% 1.85% 1.92% 2.33% 0.92% 5.49% 3.11% 2.08%
RIO 1.97% 8.35% 0.54% 2.76% 2.98% 2.68% 1.50% 1.54% 1.70% 0.60% 3.11% 8.69% 2.28%
ASX20
0 2.11% 3.15% 1.16% 2.52% 2.52% 2.52% 1.47% 2.10% 1.78% 0.94% 2.08% 2.28% 1.82%
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