On How to Construct and Manage $10 Million
Introduction
This report contains the details on how to construct and manage $10 million portfolio for a conservative client with the following objective and limitations.
Objective
Short-term-return portfolio
The target of portfolio profit is higher than HSI
Providing risk management by diversification
Limitations
The client is conservative and he requested that the cash position should be no more than 50% of portfolio balance. For stocks, it was assumed that it could be purchase fractional share of stocks; therefore the portfolio weight for each stock was recorded, rather than the number of shares of each stock was bought. Investment horizon is from 6 Feb 2012 to 2 Mar 2012 (four weeks). The initial portfolio based on the closing prices as of 3 Feb 2012. The portfolio was reviewed once per week with rebalance, if needed. Rebalance was based on the closing price on 10 Feb, 17 Feb and 24 Feb respectively. Portfolio performance was evaluated based on daily closing price and the final portfolio balance was calculated using closing price on 2 Mar.
Portfolio Construction
To order to construct a portfolio for a conservative client in a short period of 4 weeks, most recently stock return has been considerate in order to form a short-term-return portfolio.
The following steps were reviewed and analyzed once a week for the portfolio construction and rebalance.
Stocks Selection for MarkowitzII:Select some stocks among the 48 constituent stocks of Hang Seng Index (HSI) by the ranking on the top mean return with different sector of Commerce & Industry, Finance, Properties and Utilities.
MarkowitzII Analysis:Use the Markowitz Portfolio Selection Model II for the portfolio weighting selection with diversificationof different criteria and constraints.
Risk Management and Quantitative Analysis: Manage the portfolio by analyzing and rebalancing the portfolio once a week with the information of Security Market Line, Sharpe Measure, Treynor Measure and Jensen Measure