Portfolio Management Assignment Help
Portfolio Management Main Areas
How To Calculate Correlation Coefficient
The correlation coefficient have range between -1 and +1. If correlation coefficient is less than -1 and greater than +1, then answer is wrong You need to check calulations again. This only works for the linear relationship between the variables.
If the variables have a+1 score, which means X and Y have a perfectly positive correlation. If X moves up by 1 unit, Y also moves up by 1 unit. If in your calculations the correlation coefficient is 0, there is no relative movement between X and Y. If X moves up by 1 unit, there will be no change in the position of Y.
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Portfolio Management Study Help Sample
Introducing Mr John Cass
Mr John Cass is a 40 year old factory worker. He wants to save for his retirement. He plans to retire at 65. His annual salary is currently $50,000pa, and he is confident that his salary will increase by around 2.0% every year (in line with inflation) until he retires. He currently has $20,000 in a small Defined Contribution pension scheme. With the help of a professional financial planner he has been advised that he can only afford to contribute $5,000 to his pension pot every year until he retires. The financial planner has told him that if his pension savings can accumulate to around $340,000 by the time he retires he should be able to buy an annuity (a pension income) that will give him an annual pension of approximately 25% of his salary in the final year at work. Mr Cass believes that this pension, combined with another small pension that he will be entitled to from previous
employment, will enable him to live a reasonably comfortable life in retirement.
Mr Cass therefore needs an investment strategy that will generate the returns on his pension savings so that it accumulates to $340,000 by the time he retires in 25 years’ time. Outside of his pension Mr Cass has no other savings or significant financial security. The financial planner also undertook an assessment of Mr Cass’ attitude to risk. The results of this
assessment can be found below.
Answer all parts of this assessment
Part 1 (60 marks)
1. By using the asset classNamedata in the tabs entitled "Asset classNamedata for MVA" and "Background data" in the spreadsheet "Data for MVA analysis", and any other data that you may wish to collect for yourselves, use the principles that lie behind Asset Allocation 1.0 to create a Mean Variance Frontier. Then using the information given about Mr Cass, create an appropriate asset allocation for him. Please then submit the spreadsheet that you use to arrive at the recommendation with all of the calculations, making sure that it is presented clearly. Use your name to entitle the spreadsheet, that is "Jane-Smith-MVA.xlsx". (10 marks)
2. By using the data in the spreadsheet entitled "Asset classNamedata.xls", undertake the following exercises and submit them in a spreadsheet with the following tab names:
- "RP": Using the ten total return indices in the tab "RP" calculate an index based upon the Risk Parity apprach to asset allocation and show how the strategy performs against a comparable buy-and-hold strategy. Present any relevant performance statistics. (5 marks)
- "TF": Using the three total return indices in the tab "TF" use simple trend following rules to create an index reflecting the performance of a trend following strategy applied to these indices and show how the strategy performs against a comparable buy-and-hold strategy. Present any relevant performance statistics. (5 marks)
- "Mom": Using the ten total return indices in the tab "Mom", use a simple momentum-based rule to create an index reflecting the performance of this strategy. Show how the strategy performs against a comparable buy-and-hold strategy. Present any relevant performance statistics. (20 marks)
- "Comb": Create a tab in your worksheet called "Comb" and use any two of the three strategies in (a), (b), or (c) to produce a strategy that combines the two. Show how the strategy performs against a comparable buy-and-hold strategy. Present any relevant performance statistics. (20 marks)
Please submit the spreadsheet with all of your calculations clearly presented and with the appropriate analysis in the tabs entitles "RP", "TF", "Mom"
Part 2 (40 marks)
1. Based on your spreadsheet work in Part 1 of this assignment, and with the help of any of the performance statistics that you feel are relevant, which approach to investment do you believe would be best suited to Mr Cass?Make sure to justify your answerwith statistics if necessary. (Max 200 words: 5 marks)\
2. Explain how the following unrewarded risks arise for a DB pension scheme, why they are considered to be unrewarded and how they might be mitigated:
- interest rate risk
- inflaction risk
- longevity risk
- mortality risk
(Max 400 words: 20 marks)
3. What are the pros and cons of active portfolio management comapred with creating a portfolio based upon the market capitalism of an index's components? (Max 400 marks: 15 marks)
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