Revised Performance Analysis of Portfolio 1.5 - EW
November 22nd 2006 01:57
The following is the revised performance analysis of Portfolio 1.5 - EW replacing the findings first posted here on 16th November 2006. The analysis was revised due to data entry errors in the Sharpe Ratio computation, which the rest were unaffected. Taking the revision opportunity, a new test was performed to determine the Cumulative Average Returns of the portfolio. The findings are presented here:
Expected Return
Risk Free Rate (Rf) = 6 % (cash rate average based on recent RBA data)
Market Return (Rm) = 9.32% (ex-ante average market returns)
Portfolio Beta (Bp) = 1.16 (computed weighted portfolio beta)
Expected Returns, E(R) = Rf Bp x (Rm - Rf)
= 6% (1.16) x (9.32% - 6 %)
= 9.86%
Realised Return = 31% (as of 15th November 2006, [$55,173 - $ 42,117/$42,117])
Jensen Alpha = 31% - 9.86% = 21.14%
Beating the market
Based on computations from 1st August to 31st October, 2006, the daily average arithmetic returns from the portfolio and market index (ASX S&P 200) are 5.43% and 0.14% respectively, with the portfolio beating the market by an average of 5.30% on a daily basis.
Risk-Adjusted Performance (Revised)
Arithmetic Average Returns = 5.67%
Annualised Returns (x250) = 1,419%
Standard Deviations = 22%
Annualised Standard Deviations = 352%
Risk Free Rate = 6%
Sharpe Ratio = (1,419% - 6%)/(352%)
= 4.00
The reward for taking for each percentage of risk (standard deviation), the reward is a return of 4.00%. The ratio for the market index is 2.38. The new portfolio ratio is in fact better than the first error-tainted ratio which only yield 3.82% of returns for taking each percentage of risk. The difference between the portfolio and market stands at 1.62 points.
Cumulative Average Returns
Based on the past three months of portfolio returns running from August to October, 2006, the portfolio was found to have a CAR of 17% beating the CAR of ASX S&P 200 benchmark index by 16.58% which only produce a CAR of 0.42%. The findings here concur that the portfolio is indeed a market-beating one although it is considered as a passive portfolio as active trading is negated. Portfolio 1.5 - EW can be considered as a viable and practical investment strategy* at this point as the performance, so far, have been rather promising. Though the caution is there as this is only just one portfolio with no strings of precedents producing similar results to provide a concrete backing**.
** past results are no guarantee of future performance.
Market Update
The Monday loss was rectified yesterday as the ASX S&P 200 benchmark index climbed 35.6 points, recovering a third of the loss, to 3538 points. China play was the theme as the People's Bank of China is detemined to reduce economic growth rates to a more manageble and sustainable level. The fear that the coming US economic downturn will spill to China dissipated quickly.
Portfolio 1.5 - EW also regained grounds by posting an increase of 4.67% to 29.88% and after-cost profits managed to surpassed the psychological 10th level to $11,665. The Tuesday closing value of the portfolio stood at $54,702.
The Birth of Portfolio 1.5 - EW
*Disclosure
NOT SPECIFIC INVESTMENT ADVICE
This information has been prepared for distribution over the internet and without taking into account the investment objectives, financial situation and particular needs of any particular person.
The blogger makes no recommendations as to the merits of any investment opportunity referred to in its website. It is advisable to obtain specific investment advice before making anyinvestment decisions relying on the information provided. While the information available in this publication is obtained from sources believed to be reliable, the blogger gives no assurances or guarantees that the information is accurate, complete or current.
The information is provided for informational purposes only and not intended to constitute legal, financial or professional advice. It has no regard to the investment objectives or circumstances (financial or otherwise) of particular recipients, and is not an exhaustive outline of available investment opportunities.
Appropriate professional advice should be obtained prior to acting on any information contained in this publication. The blogger will not be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained in this publication.
PAST RESULTS
Any past results shown or mentioned in any of our reports or web pages do not guarantee future performance.
ACCURACY OF DATA
Whilst all information on this site is believed to be accurate, we take no responsibility and give no assurances that it is accurate. We advise that you to double check any
data before acting upon this information.
Expected Return
Risk Free Rate (Rf) = 6 % (cash rate average based on recent RBA data)
Portfolio Beta (Bp) = 1.16 (computed weighted portfolio beta)
Expected Returns, E(R) = Rf Bp x (Rm - Rf)
= 6% (1.16) x (9.32% - 6 %)
= 9.86%
Realised Return = 31% (as of 15th November 2006, [$55,173 - $ 42,117/$42,117])
Jensen Alpha = 31% - 9.86% = 21.14%
Beating the market
Based on computations from 1st August to 31st October, 2006, the daily average arithmetic returns from the portfolio and market index (ASX S&P 200) are 5.43% and 0.14% respectively, with the portfolio beating the market by an average of 5.30% on a daily basis.
Risk-Adjusted Performance (Revised)
Arithmetic Average Returns = 5.67%
Annualised Returns (x250) = 1,419%
Standard Deviations = 22%
Annualised Standard Deviations = 352%
Risk Free Rate = 6%
Sharpe Ratio = (1,419% - 6%)/(352%)
= 4.00
The reward for taking for each percentage of risk (standard deviation), the reward is a return of 4.00%. The ratio for the market index is 2.38. The new portfolio ratio is in fact better than the first error-tainted ratio which only yield 3.82% of returns for taking each percentage of risk. The difference between the portfolio and market stands at 1.62 points.
Cumulative Average Returns
Based on the past three months of portfolio returns running from August to October, 2006, the portfolio was found to have a CAR of 17% beating the CAR of ASX S&P 200 benchmark index by 16.58% which only produce a CAR of 0.42%. The findings here concur that the portfolio is indeed a market-beating one although it is considered as a passive portfolio as active trading is negated. Portfolio 1.5 - EW can be considered as a viable and practical investment strategy* at this point as the performance, so far, have been rather promising. Though the caution is there as this is only just one portfolio with no strings of precedents producing similar results to provide a concrete backing**.
** past results are no guarantee of future performance.
Market Update
The Monday loss was rectified yesterday as the ASX S&P 200 benchmark index climbed 35.6 points, recovering a third of the loss, to 3538 points. China play was the theme as the People's Bank of China is detemined to reduce economic growth rates to a more manageble and sustainable level. The fear that the coming US economic downturn will spill to China dissipated quickly.
Portfolio 1.5 - EW also regained grounds by posting an increase of 4.67% to 29.88% and after-cost profits managed to surpassed the psychological 10th level to $11,665. The Tuesday closing value of the portfolio stood at $54,702.
The winner stocks are higlighted in yellow.
The Birth of Portfolio 1.5 - EW
*Disclosure
NOT SPECIFIC INVESTMENT ADVICE
This information has been prepared for distribution over the internet and without taking into account the investment objectives, financial situation and particular needs of any particular person.
The blogger makes no recommendations as to the merits of any investment opportunity referred to in its website. It is advisable to obtain specific investment advice before making anyinvestment decisions relying on the information provided. While the information available in this publication is obtained from sources believed to be reliable, the blogger gives no assurances or guarantees that the information is accurate, complete or current.
The information is provided for informational purposes only and not intended to constitute legal, financial or professional advice. It has no regard to the investment objectives or circumstances (financial or otherwise) of particular recipients, and is not an exhaustive outline of available investment opportunities.
Appropriate professional advice should be obtained prior to acting on any information contained in this publication. The blogger will not be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained in this publication.
PAST RESULTS
Any past results shown or mentioned in any of our reports or web pages do not guarantee future performance.
ACCURACY OF DATA
Whilst all information on this site is believed to be accurate, we take no responsibility and give no assurances that it is accurate. We advise that you to double check any
data before acting upon this information.
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