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Plan for Unit 5
Portfolio performance evaluation.

Estimating beta

  1. Use your optimal weights at the stock level to compute the weekly returns for your optimal portfolio since December. What is the average weekly return of your portfolio? Annualize it. What is the average weekly standard deviation? Annualize it. What is the Sharpe ratio?(100min)
  2. Obtain the weekly returns on the market (SP500 ETF) since December. Compare your portfolio return with the benchmark return (you will need to obtain the weekly SPY returns since December). What is the incremental (excess) return of your portfolio relative to the SPY? (40min)
  3. What is the correlation between your portfolio and the benchmark?(20min)
  4. Regress your portfolio weekly returns on the market weekly returns. What is the regression beta, the regression R-squared, and regression error term? Compute the standar deviation of the regression errors. (40min)
  5. What is Jensen's alpha? (20min)
  6. What is the tracking error of the portfolio? What is the information ratio? (50min)
  7. What is the market timing component of your portfolio's performance relative to the benchmark? What is the security selection component of your outperformance/underperfomance?(40min)
  8. What is the M2 measure? (30min)
  9. Did you outperform the benchmark? (30min)