Calculate the optimal portfolio for both investors that consists of all eleven industries. Compare this to the other portfolios you have already estimated in terms of diversification benefits.

What do you observe? Contrast the differences in what you observe between the two investors.

  

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Q4: E(Rp) Correlation COND CONS ENGY HC INDU IT MATL TELE UTIL FIN RE Covariance COND CONS ENGY HC INDU IT MATL TELE UTIL FIN RE Weights E(Rp) Var(Rp) St.Dev(Rp) sharpe ratio theta utlity COND COND 0.96% COND CONS 1 0.49253577 -0.17% 0.815% CONS 0.074% xVx 2.724% 29.934694840376200% 0.83% 5 0.62991453043858000% ENGY 1.09% 24.15% HC 0.86% -15.45% INDU 1 0.92% 0.492535768 0.773792039 0.36587147 0.498337941 0.49672993 0.30098913 0.822210082 0.36806089 0.80561315 0.5127822 0.820118055 0.61251338 0.64332834 0.47762323 0.6492279 0.540858529 0.27589686 0.72473486 0.13916004 0.57694888 0.48240775 0.46330198 0.33312098 0.43936202 0.33845241 0.44708304 0.40574705 0.3280093 0.4669798 0.40114463 0.42457141 0.41457772 0.57328175 0.33229944 0.28220938 0.26617603 0.750793698 0.344214 0.71110434 0.3223198 0.67365713 0.56734995 0.49361621 0.41628809 0.37084081 0.838103205 0.32824209 0.78172542 0.4211037 0.87209205 0.63946349 0.5279292 0.42436389 0.49816684 0.69938069 12.33% IT 1.00% 11.86% MATL 0.87% IT MATL TELE UTIL CONS ENGY HC INDU FIN RE 0.003124209 0.00109651 0.00371894 0.00129556 0.00226247 0.00314083 0.00160428 0.00143833 0.00094567 0.00233571 0.0028755 0.001096511 0.00158639 0.00125302 0.00092022 0.0007217 0.00167155 0.00058315 0.00073694 0.00057887 0.00076306 0.0008025 0.003718943 0.00125302 0.00739351 0.00120376 0.00341021 0.00379015 0.00330697 0.00209833 0.00132266 0.00340319 0.00412596 0.001295563 0.00092022 0.00120376 0.00216336 0.00117416 0.00152212 0.00034348 0.00087436 0.00069862 0.00083441 0.00120226 0.002262465 0.0007217 0.00341021 0.00117416 0.00242358 0.0021899 0.00150727 0.00122248 0.00102252 0.00184585 0.00263534 0.003140831 0.00167155 0.00379015 0.00152212 0.0021899 0.00469458 0.00175403 0.00154411 0.0008249 0.0021636 0.00268943 0.001604277 0.00058315 0.00330697 0.00034348 0.00150727 0.00175403 0.00281612 0.0009668 0.00054259 0.00145795 0.00171968 0.001438335 0.00073694 0.00209833 0.00087436 0.00122248 0.00154411 0.0009668 0.00308497 0.00053563 0.00128691 0.0014468 0.000945673 0.00057887 0.00132266 0.00069862 0.00102252 0.0008249 0.00054259 0.00053563 0.00131264 0.0007478 0.00110788 0.002335706 0.00076306 0.00340319 0.00083441 0.00184585 0.0021636 0.00145795 0.00128691 0.0007478 0.00309781 0.00238939 0.002875498 0.0008025 0.00412596 0.00120226 0.00263534 0.00268943 0.00171968 0.0014468 0.00110788 0.00238939 0.00376783 -4.19% TELE HC INDU IT MATL TELE UTIL FIN RE ENGY 0.77379204 0.49833794 0.82221008 0.82011805 0.54085853 0.46330198 0.4669798 0.7507937 0.83810321 0.27589686 0.33312098 0.40114463 0.344214 0.32824209 1 0.36587147 0.49672993 0.36806089 0.61251338 1 0.30098913 0.80561315 0.64332834 0.72473486 0.43936202 0.42457141 0.71110434 0.78172542 0.5127822 0.47762323 0.13916004 0.33845241 0.41457772 0.3223198 0.4211037 1 0.6492279 0.57694888 0.44708304 0.57328175 0.67365713 0.87209205 1 0.48240775 0.40574705 0.33229944 0.56734995 0.63946349 1 0.3280093 0.28220938 0.49361621 0.5279292 1 0.26617603 0.41628809 0.42436389 1 0.37084081 0.49816684 0.69938069 0.90% 23.43% UTIL 0.80% 11.83% FIN 0.90% 24.89% 1 RE 0.96% 10.58% 1 0.74% Sum(100) 100% Q4: E(Rp) Correlation COND CONS ENGY HC INDU IT MATL TELE UTIL FIN RE Covariance COND CONS ENGY HC INDU IT MATL TELE UTIL FIN RE Weights E(Rp) Var(Rp) St.Dev(Rp) sharpe ratio theta utlity COND COND 0.96% COND CONS 1 0.49253577 -0.17% 0.815% CONS 0.074% xVx 2.724% 29.934694840376200% 0.83% 5 0.62991453043858000% ENGY 1.09% 24.15% HC 0.86% -15.45% INDU 1 0.92% 0.492535768 0.773792039 0.36587147 0.498337941 0.49672993 0.30098913 0.822210082 0.36806089 0.80561315 0.5127822 0.820118055 0.61251338 0.64332834 0.47762323 0.6492279 0.540858529 0.27589686 0.72473486 0.13916004 0.57694888 0.48240775 0.46330198 0.33312098 0.43936202 0.33845241 0.44708304 0.40574705 0.3280093 0.4669798 0.40114463 0.42457141 0.41457772 0.57328175 0.33229944 0.28220938 0.26617603 0.750793698 0.344214 0.71110434 0.3223198 0.67365713 0.56734995 0.49361621 0.41628809 0.37084081 0.838103205 0.32824209 0.78172542 0.4211037 0.87209205 0.63946349 0.5279292 0.42436389 0.49816684 0.69938069 12.33% IT 1.00% 11.86% MATL 0.87% IT MATL TELE UTIL CONS ENGY HC INDU FIN RE 0.003124209 0.00109651 0.00371894 0.00129556 0.00226247 0.00314083 0.00160428 0.00143833 0.00094567 0.00233571 0.0028755 0.001096511 0.00158639 0.00125302 0.00092022 0.0007217 0.00167155 0.00058315 0.00073694 0.00057887 0.00076306 0.0008025 0.003718943 0.00125302 0.00739351 0.00120376 0.00341021 0.00379015 0.00330697 0.00209833 0.00132266 0.00340319 0.00412596 0.001295563 0.00092022 0.00120376 0.00216336 0.00117416 0.00152212 0.00034348 0.00087436 0.00069862 0.00083441 0.00120226 0.002262465 0.0007217 0.00341021 0.00117416 0.00242358 0.0021899 0.00150727 0.00122248 0.00102252 0.00184585 0.00263534 0.003140831 0.00167155 0.00379015 0.00152212 0.0021899 0.00469458 0.00175403 0.00154411 0.0008249 0.0021636 0.00268943 0.001604277 0.00058315 0.00330697 0.00034348 0.00150727 0.00175403 0.00281612 0.0009668 0.00054259 0.00145795 0.00171968 0.001438335 0.00073694 0.00209833 0.00087436 0.00122248 0.00154411 0.0009668 0.00308497 0.00053563 0.00128691 0.0014468 0.000945673 0.00057887 0.00132266 0.00069862 0.00102252 0.0008249 0.00054259 0.00053563 0.00131264 0.0007478 0.00110788 0.002335706 0.00076306 0.00340319 0.00083441 0.00184585 0.0021636 0.00145795 0.00128691 0.0007478 0.00309781 0.00238939 0.002875498 0.0008025 0.00412596 0.00120226 0.00263534 0.00268943 0.00171968 0.0014468 0.00110788 0.00238939 0.00376783 -4.19% TELE HC INDU IT MATL TELE UTIL FIN RE ENGY 0.77379204 0.49833794 0.82221008 0.82011805 0.54085853 0.46330198 0.4669798 0.7507937 0.83810321 0.27589686 0.33312098 0.40114463 0.344214 0.32824209 1 0.36587147 0.49672993 0.36806089 0.61251338 1 0.30098913 0.80561315 0.64332834 0.72473486 0.43936202 0.42457141 0.71110434 0.78172542 0.5127822 0.47762323 0.13916004 0.33845241 0.41457772 0.3223198 0.4211037 1 0.6492279 0.57694888 0.44708304 0.57328175 0.67365713 0.87209205 1 0.48240775 0.40574705 0.33229944 0.56734995 0.63946349 1 0.3280093 0.28220938 0.49361621 0.5279292 1 0.26617603 0.41628809 0.42436389 1 0.37084081 0.49816684 0.69938069 0.90% 23.43% UTIL 0.80% 11.83% FIN 0.90% 24.89% 1 RE 0.96% 10.58% 1 0.74% Sum(100) 100%

Answer rating: 100% (QA)

What is Portfolio Optimization Portfolio optimization is nothing but a process where an in... View the full answer