(I’ll GO OVER STEP BY STEP IN CLASS TOMORROW)
Portfolio Critique Using Morningstar.com
Morningstar, Inc. is a leading provider of independent investment research in the United States and in major international markets and offers an extensive line of Internet, software, and print-based products for individual investors, financial advisors, and institutional clients. Morningstar is a trusted source for insightful information on stocks, mutual funds, variable annuities, closed-end funds, exchange-traded funds, separate accounts, hedge funds, and 529 college savings plans.
- Go to www.morningstar.com. Sign up for Premium Membership. You will be able to receive a 14-day free trial. Browse the site to become familiar with everything Morningstar has to offer. Be prepared to participate in classroom discussion and bring your questions if you have any.
- Go to X-Ray and print the page. Write a portfolio critique.
Use the daily data on the portfolio returns and the market returns (e.g., the S&P 500 index) to estimate a single-index market model. Your analysis should include
(Morningstar automatically will calculate)
- Standard deviation for each portfolio.
- Covariance between the rates of return of portfolio and S&P500.
- The correlation coefficient between each portfolio and S&P500.
- Run a regression of each portfolio against the market return and find:\
(In fact Morningstar will automatically calculate)
- Alpha for each portfolio.
- Beta for each portfolio.
- What is the systematic and nonsystematic risk of the each security?
- Sharpe Ratio of portfolios
- Plot the risk and return of each portfolio and draw the efficient frontiers.
- Identify which portfolio dominates on the efficient frontier.
- For which portfolio had an average return in excess of that predicated by the CAPM?