Case Study: Jane Smi

Group Members
Bhanupriya Gupta (2009
Sandeep K Biswal (2027
Ashish Baghel (2007)
Anand R (2005)
dy: Jane Smith [C]
Group Members
Bhanupriya Gupta (2009)
Sandeep K Biswal (2027)
Ashish Baghel (2007)
Anand R (2005)
 Weighted Returns
YEAR ALPHA OMEGA MARKET 25 Alpha & 7 50 Alpha & 75 Alpha & 25 Omega
1 10.50% 19.10% 10.80% 16.95% 14.80% 12.65%
2 20.60% 8.90% 18.40% 11.83% 14.75% 17.68%
3 -2.80% -12.60% -7.20% -10.15% -7.70% -5.25%
4 14.50% 2.10% 9.60% 5.20% 8.30% 11.40%
5 9.50% 28.60% 8.40% 23.83% 19.05% 14.28%
6 -7.60% 16.10% -8.10% 10.18% 4.25% -1.68%
7 16.90% -16.20% 18.10% -7.93% 0.35% 8.63%
8 28.40% 31.60% 19.90% 30.80% 30.00% 29.20%
9 2.40% 12.80% 5.20% 10.20% 7.60% 5.00%
10 12.10% 14.10% 11.90% 13.60% 13.10% 12.60%

AM 10.45% 10.45% 8.70%

GM 9.97% 9.39% 8.28%

STDEVP 10.26% 14.89% 9.33%

STDEV 10.82% 15.69% 9.84%

END VALUE OF 1$ INV 2.59 2.45 2.22

BETA 1.05 0.29 1

CORRELATION
ALPHA OMEGA MARKET
ALPHA 1 0.22 0.95
OMEGA 0.22 1 0.18
MARKET 0.95 0.18 1
5 Alpha & 25 Omega
ALPHA OMEGA

TREASURY RATE 0.05 TREASURY RATE

EXPECTED RETURN 10.45% EXPECTED RETURN
VARIANCE 0.01053025 VARIANCE
EXP STDEV 0.1026170064 EXP STDEV
BETA 1.05 BETA
SHARPE RATIO 0.5311010516 SHARPE RATIO
TREYNOR RATIO 0.0519047619 TREYNOR RATIO

VARIANCE

ALPHA 0.01053025
OMEGA 0.02215985
MARKET 0.0087074

COVARIANCE

ALPHA OMEGA
ALPHA 0.010530 0.003361
OMEGA 0.003361 0.022160
MARKET 0.009097 0.002500
 MARKET

0.05 TREASURY RATE 0.05

10.45% EXPECTED RETURN 8.70%
0.02215985 VARIANCE 0.0087074
0.1488618487 EXP STDEV 0.0933134503
0.29 BETA 1
0.3661112667 SHARPE RATIO 0.3965130417
0.1879310345 TREYNOR RATIO 0.037

weights
0.25 0.75 0 0.25
0.75
0

MARKET
0.009097
0.002500
0.008707
 YEAR ALPHA OMEGA MARKET ALPHA (25%) AND OMEGA (75%)
1 10.5% 19.1% 10.8%
2 20.6% 8.9% 18.4% semi stdev
3 -2.8% -12.6% -7.2% TREASURY RATE
4 14.5% 2.1% 9.6% EXPECTED RETURN
5 9.5% 28.6% 8.4% VARIANCE
6 -7.6% 16.1% -8.1% EXP STDEV
7 16.9% -16.2% 18.1% BETA
8 28.4% 31.6% 19.9% SHARPE RATIO
9 2.4% 12.8% 5.2% TREYNOR RATIO
10 12.1% 14.1% 11.9% Sortino Ratio
Information ratio
AM 0.1045 0.1045 0.087 Jensen alpha
GM 0.099652 0.093867 0.082807

STDEVP 0.102617 0.148862 0.093313

variance 0.01053 0.02216 0.008707
STDEV 0.108168 0.156914 0.098361

END VALUE OF 1$ INV 2.59 2.45 2.22

BETA 1.05 0.29 1 COVARIANCE

CORRELATION ALPHA OMEGA MARKET

ALPHA OMEGA MARKET ALPHA 0.01053 0.003361 0.009097
ALPHA 1 0.22 0.95 OMEGA 0.003361 0.02216 0.0025
OMEGA 0.22 1 0.18 MARKET 0.009097 0.0025 0.008707
MARKET 0.95 0.18 1
OMEGA (75%)

0.084804
0.05 ratio 0.778063 0.2219367833
0.1045
0.01 Rp 0.092404 M2 0.005404
0.11993 as it is more than market return, so portfolio outperformed
0.48
0.45443
0.113542
0.642661
0.232285
0.03674

WEIGHTS VARIANCE
0.25 0.01
0.75

0.25 0.75
 YEAR ALPHA OMEGA MARKET ALPHA (50%) AND OMEGA (50%)
1 0.105 0.191 0.108
2 0.206 0.089 0.184 semi stdev
3 -0.028 -0.126 -0.072 TREASURY RATE
4 0.145 0.021 0.096 EXPECTED RETURN
5 0.095 0.286 0.084 VARIANCE
6 -0.076 0.161 -0.081 EXP STDEV
7 0.169 -0.162 0.181 BETA
8 0.284 0.316 0.199 SHARPE RATIO
9 0.024 0.128 0.052 TREYNOR RATIO
10 0.121 0.141 0.119 Sortino Ratio
Information ratio
AM 0.1045 0.1045 0.087 Jensen alpha
GM 0.099652 0.093867 0.082807

STDEVP 0.102617 0.148862 0.093313

STDEV 0.108168 0.156914 0.098361

END VALUE OF 1$ INV 2.59 2.45 2.22

BETA 1.05 0.29 1 COVARIANCE

CORRELATION ALPHA OMEGA MARKET

ALPHA OMEGA MARKET ALPHA 0.01053 0.003361 0.009097
ALPHA 1 0.22 0.95 OMEGA 0.003361 0.02216 0.0025
OMEGA 0.22 1 0.18 MARKET 0.009097 0.0025 0.008707
MARKET 0.95 0.18 1
OMEGA (50%)

0.070189
0.05 ratio 0.940076 0.059924
0.1045
0.009853 Rp 0.101234 M2 0.014234
0.099262 as it is more than market return, so portfolio outperformed
0.67 as it is more than market return, so portfolio outperformed
0.549054
0.081343
0.77648
0.176302
0.02971

WEIGHTS VARIANCE
0.5 0.009853
0.5

0.5 0.5
 YEAR ALPHA OMEGA MARKET ALPHA (75%) AND OMEGA (25%)
1 0.105 0.191 0.108
2 0.206 0.089 0.184 semi stdev
3 -0.028 -0.126 -0.072 TREASURY RATE
4 0.145 0.021 0.096 EXPECTED RETURN
5 0.095 0.286 0.084 VARIANCE
6 -0.076 0.161 -0.081 EXP STDEV
7 0.169 -0.162 0.181 BETA
8 0.284 0.316 0.199 SHARPE RATIO
9 0.024 0.128 0.052 TREYNOR RATIO
10 0.121 0.141 0.119 Sortino Ratio
Information ratio
AM 0.1045 0.1045 0.087 Jensen alpha
GM 0.099652 0.093867 0.082807

STDEVP 0.102617 0.148862 0.093313

STDEV 0.108168 0.156914 0.098361

END VALUE OF 1$ INV 2.59 2.45 2.22

BETA 1.05 0.29 1 COVARIANCE

CORRELATION ALPHA OMEGA MARKET

ALPHA OMEGA MARKET ALPHA 0.01053 0.003361 0.009097
ALPHA 1 0.22 0.95 OMEGA 0.003361 0.02216 0.0025
OMEGA 0.22 1 0.18 MARKET 0.009097 0.0025 0.008707
MARKET 0.95 0.18 1
OMEGA (25%)

0.065454
0.05 ratio 1.008072 -0.00807
0.1045
0.008569 Rp 0.10494 M2 0.01794
0.092566 as it is more than market return, so portfolio outperformed
0.86
0.588768
0.063372
0.832643
0.189054
0.02268 This is the best portfolio

WEIGHTS VARIANCE
0.75 0.008569
0.25

0.75 0.25
 YEAR ALPHA OMEGA MARKET ALPHA (25%) AND OMEGA (75%)
1 0.105 0.191 0.108
2 0.206 0.089 0.184 semi stdev
3 -0.028 -0.126 -0.072 TREASURY RATE
4 0.145 0.021 0.096 EXPECTED RETURN
5 0.095 0.286 0.084 VARIANCE
6 -0.076 0.161 -0.081 EXP STDEV
7 0.169 -0.162 0.181 BETA
8 0.284 0.316 0.199 SHARPE RATIO
9 0.024 0.128 0.052 TREYNOR RATIO
10 0.121 0.141 0.119 Sortino Ratio
Information ratio
AM 0.1045 0.1045 0.087 Jensen alpha
GM 0.099652 0.093867 0.082807

STDEVP 0.102617 0.148862 0.093313

STDEV 0.108168 0.156914 0.098361

END VALUE OF 1$ INV 2.59 2.45 2.22

BETA 1.05 0.29 1 COVARIANCE

CORRELATION ALPHA OMEGA MARKET

ALPHA OMEGA MARKET ALPHA 0.01053 0.003360667 0.009097
ALPHA 1 0.22 0.95 OMEGA 0.003361 0.02215985 0.0025
OMEGA 0.22 1 0.18 MARKET 0.009097 0.002500346 0.008707
MARKET 0.95 0.18 1
0.065387
0.05 ratio 1.009113 -0.00911
0.1045
0.008551 Rp 0.104997 M2 0.017997
0.092471 as it is more than market return, so portfolio outperformed
0.840176
0.589376
0.064867
0.833503
0.189249
0.023414

WEIGHTS VARIANCE
0.723915 0.008551
0.276085
1
0.723915 0.276085
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.3724247696
R Square 0.138700209
Adjusted R Square 0.0310377351
Standard Error 0.1243732367
Observations 10

ANOVA
df SS MS F Significance F
Regression 1 0.019928134 0.019928134 1.2882874043 0.2892239755
Residual 8 0.123749616 0.015468702
Total 9 0.14367775

Coefficients Standard Error t Stat P-value Lower 95%

Intercept 0.0628794014 0.0537727028 1.1693554198 0.2759189984 -0.0611206735
X Variable 1 0.4783976847 0.4214855488 1.1350274906 0.2892239755 -0.4935497337
Upper 95% Lower 95.0% Upper 95.0%
0.1868794764 -0.0611206735 0.1868794764
1.4503451031 -0.4935497337 1.4503451031
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.6285192224
R Square 0.3950364129
Adjusted R Square 0.3194159645
Standard Error 0.0862271182
Observations 10

ANOVA
df SS MS F Significance F
Regression 1 0.0388405727 0.0388405727 5.2239364004 0.0516187007
Residual 8 0.0594809273 0.0074351159
Total 9 0.0983215

Coefficients Standard Error t Stat P-value Lower 95%

Intercept 0.0463944231 0.0372802487 1.2444772961 0.2485458621 -0.0395739846
X Variable 1 0.6678801939 0.2922130613 2.2855932272 0.0516187007 -0.0059643339
Upper 95% Lower 95.0% Upper 95.0%
0.1323628309 -0.0395739846 0.1323628309
1.3417247216 -0.0059643339 1.3417247216
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.8650679724
R Square 0.7483425969
Adjusted R Square 0.7168854215
Standard Error 0.0518702646
Observations 10

ANOVA
df SS MS F Significance F
Regression 1 0.0640055552 0.0640055552 23.7892495992 0.0012283623
Residual 8 0.0215241948 0.0026905243
Total 9 0.08552975

Coefficients Standard Error t Stat P-value Lower 95%

Intercept 0.0299094448 0.0224260813 1.3336901984 0.2190265105 -0.0218051914
X Variable 1 0.857362703 0.1757819247 4.8774224339 0.0012283623 0.4520088577
Upper 95% Lower 95.0% Upper 95.0%
0.0816240811 -0.0218051914 0.0816240811
1.2627165482 0.4520088577 1.2627165482
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.1811053141
R Square 0.0327991348
Adjusted R Square -0.0881009734
Standard Error 0.1636804283
Observations 10

ANOVA
df SS MS F Significance F
Regression 1 0.0072682391 0.0072682391 0.2712911949 0.6165723714
Residual 8 0.2143302609 0.0267912826
Total 9 0.2215985

Coefficients Standard Error t Stat P-value Lower 95%

Intercept 0.0793643797 0.0707671462 1.1214862263 0.2946126926 -0.083824952
X Variable 1 0.2889151756 0.5546927698 0.5208562132 0.6165723714 -0.9902086454
Upper 95% Lower 95.0% Upper 95.0%
0.2425537115 -0.083824952 0.2425537115
1.5680389966 -0.9902086454 1.5680389966
Important Points

1 In the first sheet, we have calculated the ratios for individual stocks and market.
2 Then we have taken three cases(portfolios) in which the weights of both the stocks i.e. Alpha a
3 Then a minimum variance portfolio is designed.
4 All the relevant ratios are calculated for these portfolios
5 Then we run the regression for the three portfolios and only stock Omega with respect to the m

Conclusion

After constructing all the portfolios and running regression, we came to conclusion that "the p

Reasons

This portfolio is having more exposure to Alpha which is having less standard deviation as comp
Secondly, the important ratios like Sharpe Ratio, Information Ratio, etc. are better for this portf
Also, as the market is not able to correctly predict the stock Omega( as can be seen from the re
ocks and market.
ts of both the stocks i.e. Alpha and Omega are different.

ock Omega with respect to the market.

came to conclusion that "the portfolio with 75% Alpha and 25% Omega is the best of three portfolios".

g less standard deviation as compared to Omega (returns being same for both).
atio, etc. are better for this portfolio.
mega( as can be seen from the regression analysis results ), so we donot consider Treynor Ratio for analysis.