Run a portfolio simulation of stocks, using the OTIS platform. The strategy or methods you use for choosing stocks is up to you, though I suggest at minimum you begin with a random selection of at least 10 stocks from the S&P500 (large cap, US stocks).

Run a portfolio simulation of stocks, using the OTIS platform. The strategy or methods you use for choosing stocks is up to you, though I suggest at minimum you begin with a random selection of at least 10 stocks from the S&P500 (large cap, US stocks). 150 150 Affordable Capstone Projects Written from Scratch

Finance 125.340

Semester 2, 2018


Portfolio instructions as given in Assignment 1:

“Run a portfolio simulation of stocks, using the OTIS platform. The strategy or methods you use for choosing stocks is up to you, though I suggest at minimum you begin with a random selection of at least 10 stocks from the S&P500 (large cap, US stocks). Then work from there implementing your chosen strategy throughout the semester. At semester’s end, you will analyze that portfolio, and write a 2-page report.”


The portfolio data runs from Monday 30 July until Friday 12 October.  You can write most of the report in advance, but will need to wait until after 12 October to calculate your final performance metrics.  The report is due 19 October.


 Report Instructions:


You should have 1 page of performance numbers (as shown below), and 1-2 pages of discussion and table.


Page format should be single-spaced lines, and double-sided printing. Use section headings as shown below.


Ensure that your name (surname/familyname in CAPS) and ID are in the header of every page.


In the discussion section, be clear and concise, using proper English.  Verbosity will count against you, as will spelling / grammar errors and unintelligible sentences.

Make the effort and take the time to make sure your work is better than “just presentable”.


Some of the information required for this report can be obtained directly from OTIS, though for TE and the measures against the Class Portfolio you’ll have to do some extra calculations.


Technical Details:


All performance numbers must be reported in Annualized terms (assume 250 trading days in the year).  Do not report daily numbers.


All performance numbers must be reported to at least 3 significant digits.

For example, r = 0.334% or r = 33.4 bps, or IR = 1.56.  Do not round 1.74 to 2; and do not report r = 0.003.


In your calculations, however, carry out each step with as many decimal places as you can (4 or 5 at absolute minimum).  Otherwise, interim rounding may cause your final answer to appear incorrect.


Data for the daily values of all the portfolios can be found on OTIS under “Rankings”, then “Performance Value Data”.



About a sporadic problem in OTIS

As I mentioned in class, there has been an ongoing issue with how OTIS reports the Day 1 value and/or return.  Elsewhere on stream you may see instructions about using a Day 0, but this time I want you to ignore that.

So, after the Main Portfolio closes, just download your data and use it as is with no modification to the raw data.  I’ll do the same in my calculations.

VERY IMPORTANT: download your data as Excel, not CSV.  Their CSV data are not reliable. But note that the data will be in newest date first order, so you’ll want to re-order the data before calculating returns.



For the Sharpe, Treynor and Jensen calculations you will need the risk-free rate.  You can get the daily numbers from OTIS on the Rankings page for Sharpe.  Download the spreadsheet (at the bottom of that page) “How was the Sharpe Ratio for my portfolio calculated.”  That spreadsheet has the daily risk-free rate numbers (those are the rates I will use to calculate these stats).


When you calculate your Beta, beware you may get odd numbers (like -4.5 or 126).  As you know, portfolio betas should be somewhat close to 1, so that may seem like an error.  However, with only a few observations (as we have in these portfolios), strange numbers can occur.  So, check your work carefully, but it may be correct.  If after checking your work the beta looks correct, report that and use it for the Treynor and Jensen measures (and don’t forget there are two Benchmarks so you’ll have two betas).


There are two versions of the Sharpe ratio; the original which assumed a constant Risk-free rate, and the revised (modern) version, which allows the risk-free rate to change daily. Use the modern version (which we went over in class).


Report “Excess Return” and “Active Return” as we have discussed in class.


The requested Std Dev is the std(Excess Return), therefore the number used in the Sharpe ratio.


Tracking error must be calculated using the industry version, as we have done in class.  As of this writing OTIS reports two versions – the “Long Term Tracking Score”, and the “Daily Tracking Score”.  Their Daily Tracking Score is the industry standard that we use.  The TE reported for your portfolio against the SP500 will probably be close to correct, but you should calculate this yourself to check your calculations (and of course you have to calculate TE against the Class Portfolio).


For all calculations requiring standard deviation, variance, or covariance (TE, Sharpe, Beta, etc), use the population version of the formula.  (e.g. if using Excel, that means using function STDEV.P, rather than STDEV.S)


 Report format follows:

 Portfolio Report (10% of course grade)

(4%) Performance Measurements (annualized):

Be clear about whether you are reporting in decimal, %, or basis points.


Gross return          _________


Excess return         _________


Std dev of Excess  _________


Sharpe                    _________


Russell 1000 as bench Class Portfolio as bench


Active return _______ _______


Beta _______ _______


TE _______ _______


Treynor _______ _______


Jensen _______ _______


IR _______ _______





(1%) Strategy

1 short paragraph

Briefly describe your strategy and how it evolved or changed during this assessment period (if it did).  You will not be graded on the meaningfulness or validity of your strategy, but it should be something – even as simple as “stocks that increased in price 3 days in a row”, or even “stocks that begin with Z.”


(1%) Portfolio Performance discussion

1 short paragraph

Take the perspective of a portfolio manager wishing to improve the chance for a big bonus.  Describe/assess your portfolio performance. Use specific information from your portfolio – do not embellish with trivia.

Feel free to use evaluation methods or criteria discussed in the lectures or textbook not mentioned above.



Please do not simply repeat info that is in the portfolio metrics table. (E.g. “My Shape ratio was 0.9, compared to the Treynor of 1.2 and Jensen of 1.5 …”)


I am interested in *interpretation*, not regurgitation.

So something like, ‘my Information ratio of 1.5, relative to the Class portfolio, indicates that my portfolio outperformed …’


Please also do not discuss/explain performance technique or theory; this report is for an audience assumed to be familiar with these methods.


(4%) Optimum portfolio

Calculate your optimum portfolio

Using the historical means and variances of your portfolio, calculate what would have been the optimum weights for your stocks.  For this purpose, use the stocks that are in your portfolio as of the closing date. (assume no transactions costs for this exercise).


SPREADSHEET submission

Price and return data for each of the stocks you used.

Ideally you will have prices/returns in one sheet, and covariance and optimization in another. Make sure you save it with our optimization parameters and constraints, so we can check that.


For each* of those stocks:

  1. download daily prices for the past year
  2. calculate the daily returns,
  3. calculate the covariance matrix.


* if there are stocks for which you cannot find prices, just omit them from your optimization.


Very briefly (2 or 3 sentences), describe how that optimum portfolio compares to your actual ending weights. Include (perhaps in a small table) what parameters you used – objective, risk aversion, short selling.

Also describe how some metrics have changed – Sharpe, variance, …


Include a table for the stocks and their optimum weights and dollar values. (if you have many stocks, this can be attached to the report)


Name ticker Desired weight Ending Value**
Henry Capstone HCE 30.3%  $          303,000
Jane Cornerstone JCE 57.2%  $          572,000
Xavier Doors XD 12.5%  $          125,000


**  also show required trades.

If applicable, attach a screen shot of your optimization inputs.

DO NOT attach tables of data or return series (that will be in your spreadsheet submission).