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What is the minimum variance portfolio

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Reference no: EM132065011

Assignment : Mean Variance Optimization (MVO)

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Q1A. Select three (3) stocks that are of interest to you, but select each stock from a different industry. This will insure some degree of naïve diversification and a greater potential for portfolio risk (standard deviation of portfolio returns) reduction. Once you select your three stocks, replicate the example in the "Three Security Portfolio_ER_SD.xls" file using YOUR three stocks.

You will need to calculate monthly total returns from the most recent 24-month period. Calculate monthly total returns based on the month-ending Adj Close* price found under Historical Prices on the www.finance.yahoo.com website.

Total Monthly Return = [Adj Close* Price Month (t) - Adj Close* Price Month (t-1)] / Adj Close* Price Month (t-1)

The Adj Close* price is adjusted for dividends and splits, so this price is all that you need to calculate a total return.

Q1B. What is the Minimum Variance Portfolio(MVP) for your three stocks. That is, show the weights for your three stocks that provide the MVP. Follow the example in the article "Mean Variance Optimization: Two-Asset Portfolio"that solves for the MVP using Solver in Excel.

Note: You will need to MODIFY the cell formulas shown in the article as per the instruction given to you in class in order to solve for your Three-Asset MVP using Solver in Excel.

Attachment:- Three-security-portfolio.rar

Reference no: EM132065011

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