Financial Portfolio Analysis: 849G1 Spring Term Project

This project conducts a comprehensive financial portfolio analysis, focusing on the selection and evaluation of five risky assets (CBA, ANZ, WBC, CSL, and BHP). The analysis begins with computing the sample mean, variance, standard deviation, and other statistical measures of these stocks, followed by the annualization of these metrics. The report delves into the creation of a vector of expected returns, highlighting that CSL provided the highest return and BHP the lowest. The variance-covariance matrix is computed to understand the relationships between the stocks. The project computes the beta of each stock, revealing that BHP exhibits the highest sensitivity to market movements, while CSL shows the least. The decomposition of total risk into systematic and unsystematic components is then presented. The analysis includes the construction and interpretation of the Capital Market Line (CML) and the Security Market Line (SML), providing insights into portfolio risk and return. The project further explores portfolio optimization techniques, including minimum variance portfolios and weights of portfolios to minimize variance. The Excel solver function is used to find the most minimal portfolio variance where beta equals 1. The project concludes with a discussion of the investment performance of the constructed portfolios, comparing them against the index performance.