Week 2 Flashcards
How do you denote weights in matrix algebra?
How do you denote returns in matrix algebra?
How do you denote the variance covariance in matrix algebra?
How do you calculate portfolio returns using matrix algebra
How do you calculate portfolio variance using matrix algebra
How to go from variance to volatility (standard deviation) using matrix algebra?
What is an important assumption in the matrix algebra formula’s?
Hint: data preparation
The given formula’s assume that we talk about column vectors. Therefore always make sure you set up your weights and returns are set up in column vectors. Then formula’s work as you have studied them.
Example: X transposed means that the final result should be a row vector
Formula to calculate the covariance of two portfolio’s
=mmult(mmult(transpose(w1),varcovar),w2)
How do you build enveloppe portfolio’s?
- calc stock statistics
- calc two random envelope portfolio’s using C
- Standardize the weights
- calc envelope Portfolio Statistics
- calc combinations of the envelope portfolios
- calc portfolio statistics of the combinations
How do you calculate the market portfolio?
- calc stock statistics
- calc envelope portfolio using RF
- Standardize the weights
- calc envelope Portfolio Statistics
- calc combinations of the Market portfolio and rf
- calc portfolio statistics of the combinations
The MP has the highest sharpe. “Highest return for every unit of risk”
How do you calculate the variance of the CML portfolio?
Market weight^2*variance
How do you calculate CAPM alpha in excel
Intercept(return apple - rf, return s&p 500 - rf)
ALWAYS check time period. Monthly, yearly alpha Y=apple-rf
