Portfolio Strategy Presentation

8/8/2019 Portfolio Strategy Presentation

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Portfolio StrategyHaifeng Yao

Yan Zhang



Make money by following the NASDAQ CompositeIndex based on a risk adjusted return.

the average risk tolerance

Objective



Ideally, should buy every stock included in NASDAQComposite Index,

Two problems: 1 million investable asset; hightransaction commission fee;

Approach:

construct a portfolio which will have the same riskprofile as our benchmark does

Portfolio construction



Calculate the Beta of the NASDAQ Composite Index:

1. collect S&P 500 and NASDAQ Composite Indexhistorical dataMonthly data, from Oct 16, 2000 to Oct1, 2010

2. use the simple regression to find out the Beta of

NASDAQ

3. see the following graph

Portfolio construction



The Beta of NASDAQ Composite Index is 1.3887 timesof That of S&P 500.

y = 1.388x + 0.001R² = 0.784

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

-15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

Series1

Linear (Series1)



top-down approaches to select stocks

---consider the macro-economy factor

---analyze industrial sectors

---pick up a stock within the industrial sector

Security selection



Within each above industry, we select the followingstock:

1. Southern Copper Corporation (SCCO)

2. Apple Inc. (AAPL)

3. New Oriental Education & Technology Group (EDU)

4. AGAMedical Holdings, Inc. (AGAM)

Security selection



Stock Industry -i Weight (%) p NASDAQ

AAPL Technology 1.36 30

1.3 1.39

AGAM Medical Appliances & Equipment 0.92 20

SCCO Copper 1.61 30

EDU Education & Training Service 0.97 20

Analysis before selection

[i] www.finance.yahoo.com



CORRELATION NASDAQ AAPL AGAM SCCO EDU

NASDAQ 1.0

AAPL 0.61 1.00

AGAM 0.67 0.39 1.00

SCCO 0.50 0.35 0.51 1.00

EDU 0.41 0.88 0.26 0.07 1.00

Diversification advantages

The correlation between these stocks:



Performance Evaluation

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

EDU

SCCO

APPL

AGAM

PORTFOLIO



Portfolio VS. NASDAQ

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

PORTFOLIO

NASDAQ



Our portfolio follows NASDAQ Composite Index, butit is more fluctuate

The correlation between our portfolio and NASDAQ is92.8%, their daily standard deviation are 1.16% and1.03%, respectively.

Conclusion



Performance evaluation



choose other industrial sector or select other securities

using some derivative instruments

construct a well diversified portfolio

Adjustment

Portfolio Strategy Presentation

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