Discuss whether Markowitz diversification helped reduce risk (refer to the calculations in point 4.a.)

Investment & Financial market nehaviour

How to analyse the portfolio in Word document

1. You must first analyse your portfolio choices from a behavioural perspective. Use around 500 words to discuss the biases that (may) have influenced your choice of assets. Typical biases to consider are overconfidence, representativeness, availability, ambiguity aversion, narrow framing, herding etc. You will need to cite literature sources (with references) in the discussion.

2. Next you must evaluate your portfolio asset allocation by applying portfolio theory (around 1000 words). You will need to cite theory and literature sources (with references) in the discussion.

3. First look at the initial 10-asset portfolio and
a. Analyse the diversification of the initial 10-asset portfolio
i. How well diversified was it across asset classes? How could you improve it?
ii. How well diversified was it within the asset classes? How could you improve it?
iii. How well diversified was it across international and domestic? How could you improve it?
b. How did your portfolio perform over your investment period (the month between 1-Feb and 1-Mar)? Would a naïve diversification strategy have yielded better a better result (see the equal weights portfolio)?
c. Discuss the correlations between your 10 portfolio assets – refer to the matrix (point 2.c.)

4. Comparing Portfolio A and Portfolio B,

a. Discuss whether Markowitz diversification helped reduce risk (refer to the calculations in point 4.a.)

b. discuss the portfolio betas you calculated (point 4.b.) relative to the market risk.

c. discuss the Sharpe ratios you calculated (points 4.c.). Which allocation is the best – Portfolio A or Portfolio B, and why?

5. Going back to your initial 10-asset portfolio,
a. Would this portfolio be good enough for you to meet your retirement goal? Indicate how you think your portfolio performance should be judged or benchmarked over the long-term.
b. With explicit reference to active and passive management, how would you change it?