Port Risk

Return to
VFINX
10.74
28.50
-22.15
-12.02
-9.06
21.07
28.61
33.21
22.86
37.44
Return to
SPY
10.70
28.18
-21.59
-11.75
-9.73
20.39
28.28
33.48
22.55
38.05
Return to
DGAGX
5.57
20.39
-17.14
-10.75
1.80
9.97
30.85
27.85
25.67
37.88
Return to
SPX
10.88
28.68
-22.10
-11.89
-9.11
21.04
28.58
33.36
22.96
37.58
vfinx
-0.14
-0.18
-0.05
-0.13
0.05
0.03
0.03
-0.15
-0.10
-0.14
spy
-0.18
-0.50
0.51
0.14
-0.62
-0.65
-0.30
0.12
-0.41
0.47
dgagx
-5.31
-8.29
4.96
1.14
10.91
-11.07
2.27
-5.51
2.71
0.30
13.92
13.86
13.21
14.00
-0.08
-0.14
-0.79
Periodic Tracking Error (%):
0.09
0.43
6.68
Period/Yr:
1.00
1.00
1.00
Annual Tracking Error (%):
0.09
0.43
6.68
Period
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Average (%):
Five-Asset Class Portfolio Risk Decomposition
This spreadsheet calculates the asset-specific marginal risk contributions for a five-asset class portfolio. The
user must specify the expected return and standard deviations for each asset class, as well as the correlation
coefficients between the asset classes.
The spreadsheet automatically computes: (i) total portfolio risk, (ii) marginal risk of each asset, and (iii) each
asset total contribution to risk. The user can also roll-up the risk calculations for various subsets of the asset
classes.
***Input:CapitalMarketVariables***
R1=
R2=
1.00%
2.00%
R3=
R4=
R5=
1=
12=
4.00%
8.00%
7.50%
10.00%
2=
3=
4=
18.00%
25.00%
13=
14=
15=
4.00%
5=
12.00%
23=
***Input:PortfolioWeights***
w1=
w2=
w3=
w4=
w5=
24=
0.50
0.20
0.30
0.50
25=
34=
35=
0.40
45=
PortfolioStd.Deviation:
p=
3.10%
21.48%
9.67%
PortfolioReturn:
23.77%
11.52%
40.13%
Rp=
5.00%
______
Sum=
100%
1.TotalPortfolioRiskDecomposition:
TotalContribution
AssetClass
MarginalRisk
2.11%
0.07%
2
3
4
4.00%
14.39%
0.86%
3.42%
19.11%
7.78%
2.20%
3.12%
toPortfolioRisk
WeightedAverage:
9.67%
2."Rollup"PortfolioRiskDecomposition:
AssetClass
MarginalVolatility
ofAssetRollUp
Include(yes/no)
1
2
3
yes
yes
3.76%
no
no
4
5
no
VarianceCovarianceMatrix(Note:Thisiscalculatedbytheprogram)
0.0016
0.0016
0.00144
0.003
0.0024
0.0016
0.00144
0.0064
0.00576
0.00576
0.0324
0.006
0.0315
0.00096
0.00324
0.003
0.0024
0.006
0.00096
0.0315
0.00324
0.0625
0.006
0.006
0.0144
0.30
0.10
0.70
0.15
0.20
Calculation of the Mean-Variance Efficient Weights for a Three Asset Portfolio

Thisprogramcalculatestheoptimalportfolioallocationsthatdefinethemeanvarianceefficientfrontierforathree
asset class portfolio. The user needs to input: expected returns and standard deviations for the asset classes;
correlations between the asset classes; and the expected return goal. The program calculates the analytical
solution to the constrained portfolio variance minimization problem with short sales allowed.
R1=
R2=
R3=
12.00%
5.10%
3.60%
12=
13=
23=
21.20%
8.30%
3.30%
0.18
0.07
0.22
***Input:ReturnGoal***
R*=
********
8.00%
********
********
***CalculationofOptimalWeights(Note:CalculationisAutomatic)***
w1*=
45.99%
w2*=
35.80%
w3*=
18.21%
Test:SumofWeights=
Test:R*Constraint=
1
0.08
***CalculationofPortfolioStd.Deviation***
p=
*******
10.71%
*******
*******
(Note: The following calculations are the intermediate steps in the analytical solution presented above.)
CalculationofVMatrixandInverseofV
VMatrix:
0.044944 0.00316728 0.00049
0.0031673 0.006889 0.0006026
0.00049 0.00060258 0.001089
DetV:
3.064E007
cofactorV:
7.139E006 3.7E006 5.282E006
3.74E006 4.87E005 2.86E005
5.282E006 2.9E005 0.00029959
adjV:
7.139E006 3.7E006 5.282E006
3.74E006 4.87E005 2.86E005
5.282E006 2.9E005 0.00029959
Calculation of the Mean-Variance Efficient Weights for a Three Asset Portfolio

InvV:
23.2989 12.219778 17.239055
12.21978 158.950995 93.44808
17.239055 93.448081 977.73393
Test:(V)x(InvV)
1
0
0
1
0
0
0
0
1
CalculationofEfficientSetConstants
R'(InvV):
2.79326533
3.27599647
32.5012562
i'(InvV):
28.318177
53.283136
901.52491
A=
B=
C=
38.5705179
1.67231288
983.126222
CalculationofMMatrixandInverseofM
MMatrix:
1.67231288 38.570518
38.5705179 983.12622
DetM:
156.40979
InvM:
6.28557982 0.246599
0.2465991 0.0106919
cofactorM:
983.126222 38.57052
38.570518 1.6723129
adjM:
983.126222 38.57052
38.570518 1.6723129
Test:(M)x(InvM):
1
0
IntermediateCalculationforWeights
(InvV)[Ri]:
2.79326533 28.318177
3.27599647 53.283136
32.5012562 901.52491
(InvM)[R*1]':
0.25624726
0.0090361
0
1
Mean-Variance Efficient Portfolio Weights With No Short Sales
When run with the Solver add-in on MS Excel for Windows, this spreadsheet is
capable of calculating the mean-variance efficient weights for a three asset portfolio.
The user must provide the following inputs: (i) returns, standard deviations, and
correlations for the three asset classes; and (ii) a return goal to be acheived by the
portfolio.
The Solver uses a numerical approximation procedure to select the new weight
values that minimize the portfolio variance subject the following constraints: (i) the
weights sum to one; (ii) the return is at least as great as the goal; and (iii) no short
selling is allowed.
R1=
R2=
R3=
12.00%
5.10%
3.60%
1=
2=
3=
OptimalPortfolioWeights:
21.20%
8.30%
3.30%
12=
13=
23=
0.18
0.07
0.22
w1=
w2=
w3=
85.51%
14.49%
0.00%
______
Sum=
100%
PortfolioReturn:
R*=
11.00%
Rp=
p=
11.00%
0.044944
0.00316728
0.00048972
0.00316728
0.006889
0.00060258
0.00048972
0.00060258
0.001089
18.38%
Mean-Variance Efficient Portfolio Weights With Limited Short Sale Restrictions
When run with the Solver add-in on MS Excel for Windows, this spreadsheet is
capable of calculating the mean-variance efficient weights for a three asset portfolio.
The user must provide the following inputs: (i) returns, standard deviations, and
correlations for the three asset classes; and (ii) a return goal to be acheived by the
portfolio.
The Solver uses a numerical approximation procedure to select the new weight
values that minimize the portfolio variance subject the following constraints: (i) the
weights sum to one; (ii) the return is at least as great as the goal; and (iii) limited
short selling is allowed.
R1=
R2=
R3=
12.00%
5.10%
3.60%
1=
2=
3=
21.20%
8.30%
3.30%
12=
13=
23=
0.18
0.07
0.22
w1=
w2=
w3=
77.71%
58.16%
35.87%
______
Sum=
100%
PortfolioReturn:
R*=
11.00%
Rp=
p=
11.00%
0.044944
0.00316728
0.00048972
0.00316728
0.006889
0.00060258
0.00048972
0.00060258
0.001089
18.03%
When
When
run run
withwith
the the
Solver
Solver
add-in
add-in
on MS
on Excel
MS Excel
for Windows,
for Windows,
this this
spreadsheet
spreadsheet
is capable
is
of calculating the
mean-variance
capable of calculating
efficient weights
the mean-variance
for a five asset
efficient
class portfolio.
weights for
The
a three
user must
assetprovide
portfolio.
the following inputs: (i)
returns,
The standard
user mustdeviations,
provide the
and
following
correlations
inputs:
for(i)
the
returns,
five asset
standard
classes;
deviations,
and (ii) aand
return goal to be acheived by
the correlations
portfolio.
for the three asset classes; and (ii) a return goal to be acheived by the
portfolio.
The Solver uses a numerical approximation procedure to select the new weight values that minimize the
portfolio
Thevariance
Solver uses
subject
a numerical
the following
approximation
constraints:
procedure
(i) the weights
to select
sum
the
tonew
one;weight
(ii) the return is at least as great
values
the portfolio
as the
goal;that
andminimize
(iii) no short
selling isvariance
allowed. subject the following constraints: (i) the
selling is allowed.
R1=
R2=
1.00%
2.00%
R3=
R4=
R5=
7.50%
10.00%
4.00%
1=
2=
3=
4=
5=
4.00%
8.00%
18.00%
25.00%
12.00%
12=
13=
14=
15=
23=
0.50
0.20
0.30
0.50
0.40
24=
25=
34=
35=
45=
w1=
3.10%
w2=
w3=
21.48%
23.77%
w4=
w5=
11.52%
40.13%
R*=
5.00%
______
Sum=
100%
PortfolioReturn:
Rp=
p=
5.00%
0.0016
0.0016
0.0016
0.0064
0.00144
0.00576
0.003
0.006
0.0024
0.00096
0.00144
0.003
0.0024
0.00576
0.006
0.00096
0.0324
0.0315
0.00324
0.0315
0.0625
0.006
0.00324
0.006
0.0144
9.67%
0.30
0.10
0.70
0.15
0.20
When
When
run run
withwith
the the
Solver
Solver
add-in
add-in
on MS
on Excel
MS Excel
for Windows,
for Windows,
this this
spreadsheet
spreadsheet
is capable
is
of calculating the
mean-variance
capable of calculating
efficient weights
the mean-variance
for a five asset
efficient
class portfolio.
weights for
The
a three
user must
assetprovide
portfolio.
the following inputs: (i)
returns,
The standard
user mustdeviations,
provide the
and
following
correlations
inputs:
for(i)
the
returns,
five asset
standard
classes;
deviations,
and (ii) aand
return goal to be acheived by
the correlations
portfolio.
for the three asset classes; and (ii) a return goal to be acheived by the
portfolio.
The Solver uses a numerical approximation procedure to select the new weight values that minimize the
portfolio
Thevariance
Solver uses
subject
a numerical
the following
approximation
constraints:
procedure
(i) the weights
to select
sum
the
tonew
one;weight
(ii) the return is at least as great
values
the portfolio
as the
goal;that
andminimize
(iii) no short
selling isvariance
allowed. subject the following constraints: (i) the
selling is allowed.
R1=
R2=
4.35%
5.69%
R3=
R4=
R5=
9.79%
9.94%
10.89%
1=
2=
3=
4=
5=
4.02%
8.81%
15.62%
15.35%
21.29%
12=
13=
14=
15=
23=
0.41
0.14
0.16
0.20
0.02
24=
25=
34=
35=
45=
w1=
13.96%
w2=
w3=
26.96%
29.68%
w4=
w5=
26.19%
3.21%
R*=
8.00%
______
Sum=
100%
PortfolioReturn:
Rp=
8.00%
p=
0.00161604 0.0014520642 0.000879094 0.000987312 0.001711716
0.0014520642
0.00776161 0.000275224 0.0028399035 0.000075026
0.000879094 0.000275224
0.02439844 0.015584855 0.0229459362
0.000987312 0.0028399035 0.015584855
0.02356225 0.0238565095
0.001711716 0.000075026 0.0229459362 0.0238565095
0.04532641
8.93%
0.21
0.00
0.65
0.69
0.73

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Return to

Periodic Tracking Error (%):

Annual Tracking Error (%):

Five-Asset Class Portfolio Risk Decomposition

Calculation of the Mean-Variance Efficient Weights for a Three Asset Portfolio

Calculation of the Mean-Variance Efficient Weights for a Three Asset Portfolio

Mean-Variance Efficient Portfolio Weights With No Short Sales

Mean-Variance Efficient Portfolio Weights With Limited Short Sale Restrictions

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