In this assignment, you will be asked to create a portfolio of your own choice, devise hedging strategies using futures contract, and analyse the performance of your strategy. The objective of your strategies is to reduce the risk of your portfolio, but the grade awarded will be based on

A logical, coherent strategy designed to hedge the associated risk

A demonstration of lecture theory in a practical setting showing your understanding.

An analysis of the strategy performance apropos of the original intention

Part 1: Construct your own equity portfolio (the members of your portfolio must be described in your context), and then analyse it using PORT and as an index created from CIXB

Select 10 different stocks from the S&P 500 index members, the stocks you choose should cover at least 3 different industrial sectors. You must state the reason why you want to invest in the chosen stocks in your context. You need to decide how many number of shares you hold for each stock but make the number of shares for the stocks in your portfolio large enough so that your portfolios market value is approx $10 million.

Select a time period, and create historical data for your portfolio (see workshop section Steps for Creating Historical Date for Portfolio in PRTU). Import your portfolio in CIXB and create historical data (see Workshop 2 Bloomberg CIXB Screens)). Write a short report to include the following elements: evaluate the performance of your portfolio in PORT (It is understandable that you do not know every statistics presented in PORT, however, you should at least focus on 3 to 5 statistics and form up your discussion), examine your portfolio as a basket created in CIXB by examining its historical values (GP) and regression relation with a market index (relevant figures and regression tables should be attached), with extra marks awarded for good quantitative analysis provided.

Part 2: Examine an ex-post short hedging position for the portfolio you created and write a report to evaluate your strategy

Select one futures contract on S&P 500 (SPA) to hedge your portfolio. Use the expiration date on the future contract as the date of your hedge value.

Select a beginning date that you would have implemented your hedge and a closing date near the futures expiration as the date for closing your hedge. Use the Minimum Variance Hedge model to determine the number of futures contracts needed to hedge the portfolio.

Use Bloombergs OSA screen to determine the number of futures contracts you would need to hedge your portfolio. Is number of future contracts you calculated from Bullet Point 2 above, the same as the number of future contracts calculated by the Bloomberg Terminal? If not, why?