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Title: Excel for Portfolio Optimization
Description: These notes describe how to use Microsoft Excel to perform a portfolio optimization. These are college level notes but they can also be used for high school classes and AP courses.
Description: These notes describe how to use Microsoft Excel to perform a portfolio optimization. These are college level notes but they can also be used for high school classes and AP courses.
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Excel for Portfolio Optimization
Friday, February 12, 2016
10:19 AM
• Expected Return = average
○ Highlight both averages, name ExpectedRealReturn
• Find Variance and Covariance
• Variance of Sum = SUM(Var1, Var2, 2*Covar(1,2))
• Portfolio:
○ Stock 1 - 50%
○ Stock 2 - 50%
§ Highlight Stock 1 and 2, name PortfolioFractions
○ 100% = 100% (separate cells)
§ 1st 100% = Investment Sum
§ 2nd 100% = OneHundredPercent
• Portfolio Expected Return = SUMPRODUCT(PortfolioFractions,
ExpectedRealReturn)
○ Make >= MinAcceptableReturn (in separate cell)
• Portfolio Risk (%^2) = ((Stock 1 %*STDEV1)^2 + (Stock 2 %*STEDV2)^2) + 2
*Stock 1%*Stock 2 %*Covariance
• Portfolio Risk = SQRT(PortfolioRisk%^2)
• Solver
○ Set Objective: PortfolioRisk
○ By Changing Variable Cells: PortfolioFractions
○ Subject to Constraints:
§ InvestmentSum = OneHundredPercent
§ PortfolioExpectedReturn >= MinAcceptableReturn
Title: Excel for Portfolio Optimization
Description: These notes describe how to use Microsoft Excel to perform a portfolio optimization. These are college level notes but they can also be used for high school classes and AP courses.
Description: These notes describe how to use Microsoft Excel to perform a portfolio optimization. These are college level notes but they can also be used for high school classes and AP courses.