Assuming Stock Prices Follow Fin 4453 Usf Expecte

This
project’s purpose is to form a portfolio with 2 risky assets (2 common
stocks) and 1 risk-free asset (1-year Treasury Bills), and calculate the
optimal portfolio weights among these assets.

Pick 2 stocks you are interested in investing (They can be any stock,
as long as they are common stocks listed on NYSE/Nasdaq/Amex). For each
of the stock, do the following:

(1) Obtain its 5-year historical daily prices (1/1/2015 – 12/31-2019)
on Yahoo finance and calculate its daily holding period returns.

(2) Generate a summary statistics report on its holding period returns.

(3) Create a Histogram chart on its holding period returns.

(4) Estimate its annualized volatility using all the holding period returns from (1).

(5) Use the S&P 500 holding period returns during the same period
as market return, run a regression to estimate the beta of this stock.
Y: stock return minus risk-free rate. X: market return minus risk-free
rate. You can use 1.5% as risk-free rate.

(6) Once beta is estimated, calculate the expected return of this
stock using CAPM. According to CAPM, Expected return = Rf +
beta*(Rm-Rf). Note that Rf should be an annual return, Rm should also be
an annualized return, which can be calculated using average of daily
S&P 500 returns in part (5) multiplied by 252.

(7) Use the expected return and annualized volatility you estimated
in part (4) and (6), simulate daily stock prices for the next 252 days,
assuming stock prices follow Geometric Brownian Motion.

(8) Form a portfolio with both stocks and risk-free asset. Estimate
the correlation coefficients between two stocks. Use this formula
=CORREL(HPRs of stock1, HPRs of stock 2)

(9) Set a target portfolio return, use Solver to estimate the optimal
weights for all assets in your portfolio. (Tip: If your solver is
unable to give you a solution, consider changing your target portfolio
return to a more realistic number, for example, if both your stocks have
expected returns around 10% based on CAPM, setting a target portfolio
return of 20% will probably not work.)