I. Portfolio Objective: A. Allocation For our portfolio mix, we invested roughly 81% on stocks, 15% on Bonds and 4% on Cash. Our target for the portfolio allocation is that we invested 90% on stocks and 10% on Cash for short term investments. Our goal was investing 80% of our cash for stock market because we know that will get higher return form stock market instead of bonds which is safer to own but bring lower return, and we are young, so we love to take more risk. We also wanted to keep 20% of our money in cash which available for short-term investment.
According to the requirements, we ended up spent around 60% on domestic market stock, 10% on international stock market, 10% for short-term stock, 15% on bonds and the rest is in cash which can also bring us interest. As we said above, we are risk takers, so we would have spent all of money for our stock market. Therefore, for this project we think that we followed both active and passive strategy, but we really understand the purpose of this project which help us to begin investing in stock and bond market and its system. II. Performance Evaluation:
Let begin our Stock-Trak performance which the regression result: Stock-Trak ReportBy Khang Nguyen and Tseveendorj Jigmedsanjaa10-08-2012| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The 13% of the R-square is explained by the The alpha has a negative return and the p-value is greater than 1, so it means it is insignificant. In other words, I have an abnormal return. On the other hand, the beta=1. 58 which was positive and the p-value was less than 1. My annualized geometric return on the portfolio was negative along with the S&P500 returns.
Therefore, it is unreasonable to explain the Sharpe and Treynor Ratio. In order to explicate these ratios, your annualized geometric return has to be positive along with the market index. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As we seen in the table, the R-square is only . 13 which means that only 13% of Y is explained by X which is not good.
The standard deviation of the portfolio is higher than the market index, which means that the portfolio was risky comparing to the market index. The alpha has a negative return and the p-value is greater than 1, so it means it is insignificant. In other words, I have an abnormal return. On the other hand, the beta=1. 58 which was positive and the p-value was less than 1. My annualized geometric return on the portfolio was negative along with the S&P500 returns. Therefore, it is unreasonable to explain the Sharpe and Treynor Ratio.
In order to explicate these ratios, your annualized geometric return has to be positive along with the market index. III. Discussion On September 13, 2012, the Fed has announced the launch of Quantitative Easing 3. It is a monetary policy used by central banks to simulate the economy. Therefore, the Fed is buying $40 billion worth mortgage-backed securities every month until at least mid-2015. The reason is simply because lower interest rates help stimulate the economy and make loans to buy securities on margin cheaper. In other words, the purpose of quantitative easing 3 is to create more jobs.
Moreover, we as investors experience that it has an immediate effects on the stock market. Investors in search of yield will have more reason to buy equities and to lend money to companies. Therefore, during September stock market indexes such as Dow Jones Industrial and S&P500 reacted positively by giving a rise in the index. However, my portfolio reaction at that time was not similar to these indexes because during September I have not made a substantial amount of trades except buying corporate bonds and short selling on stocks.
As a reason for that, my portfolio returns were poorly comparing to the stock market indexes. On the other hand, I was mainly investing on Apple stocks (AAPL) throughout this 7 week period and after the announcement of the new i-phone 5 on September 12, 2012 along with the quantitative easing 3 announcement, apple was outer performing the stock market indexes. At that time, I had number of Apple shares and the price was increasing due to the positive announcements. Moreover, Apple stock hit all time high which was $702. 10 per share during September.
Nonetheless, after few weeks later, I have sold all my Apple stocks because there were some minor defects on the i-phone 5 and the announcement of the new mini i-pad did not show any positive effect on the share price of Apple. I was very up to date on the Apple news because, I have invested substantial amount of money on Apple stock. Furthermore, based on the negative news after i-phone 5, I have sold all of my Apple securities because I predicted the Apple stock is going to go down after these rough news’s. Hence, it worked as I have planned and the current Apple stock is roughly $580 which went down by $120 from the all-time high price.
Furthermore, as you can see it from the graph of the portfolio, I have a boost in my return on October 22, 2012 and major drop in my return on October 26, 2012. It is because I bought Apple call option and during that time the price was rising, so I had positive returns. The reason why it dropped significantly is because I did not sell my call options before the expiration date. IV. Commentary As a beginner investor, trading on stock market was pretty intimidating and daunting task. It was important for me to learn in a safe, insightful way to avoid unnecessary losses.
By far, Stock-Trak was investing internet site that has various types of features and tools. Stock-Trak trading is conducted in much the same way as you would trade through your own brokerage account with a broker that supports trading on the Internet. With the Stock-Trak Portfolio Trading Simulation you gain valuable experience trading securities at actual market prices. During the seven week trading period, I have learned that there are various types of investments choices including options, money market mutual funds, commodities, bonds and so forth.
Moreover, diversifying portfolio is very crucial to success on trading. It is a way of protecting your assets by reducing or eliminating risk in your portfolio. Constantly evaluating your stocks to assess their risk is important to your overall success. In additional, this graph will show the relationship of our return with the market return: V. Appendices A. End of Day Portfolio values B. Requirement return: Requirement| Position Type| Security Info*| Transaction Dates**| 1| Corporate Bond| Long| UNITED AIRLINES INC – B-UAL-12. 000-01120213| 9/27/2012-10/26/2012| 2| Common Stock | Short| FACEBOOK INC. FB| 9/14/2012-10/11/2012 | 3| Treasury Bond| Long| T-BOND 10. 625% – B-T-10. 625-15082015| 9/28/2012-10/26/2012| 4| Money Market Fund| Long| iShares Dow Jones U. S. Total Market Index FundIVY| 10/5/2012-10/26/2012| 5| Domestic Index Mutual Fund| Long| JPMORGAN VALUE ADV (A) JVAAX| 10/5/2012-10/26/2012| 6| ETF| Long| | | 7| Call Option | Long| Apple Inc. AAPLAAPL1226J635| 10/19/2012-10/26/2012| 8| Put Option | Long| | | 9| Index Futures| Short| S&P500 12/12SP/Z2| 10/25/2012-10/26/2012| 10| Commodity Futures| Long| USDIDX DEC 12 DX/72| 10/25/2012-10/26/2012|