Asset Allocation Calculator Excel

Details: Details: It's a Microsoft Excel workbook (Version 7.0 for Windows 95) that allows the user to input his own asset allocation and withdrawal rate. The calculator returns the percent survivablity for the portfolio and the terminal values of the portfolio at the end of 10,20,30,40,50 and 60 year pay out periods. asset allocation spreadsheet

Excel-based software application for estimating portfolio returns and performing asset allocation using the Black-Litterman model. These free excel spreadsheets are related to business finance, including valuations, cash flow models, forecasting, and fundamental analysis. Note: The site is not responsible for any errors in the models. I am trying to compute a small Black Litterman model in R. I am following a Youtube video and translating the excel implementation in R. I have a var cov S matrix INTC AEP.

› Verified 4 days ago

› Url: https://www.how-use-excel.com/asset-allocation-calculator-excel/ Go Now

› Get more: Asset allocation spreadsheetShow All

The Best Free Asset Allocation Spreadsheet – Valuist

Details: The asset allocation spreadsheets sees that “VWO” represents 19.35% of the total sample portfolio. Thus, the spreadsheet calculates 19.35% of each attribute (large cap, mid cap, small cap etc.) to reflect your true asset allocation. asset allocation model excel

› Verified 3 days ago

› Url: https://www.valuist.com/asset-allocation-spreadsheet/ Go Now

› Get more: Asset allocation model excelShow All

Easy, Simple, Quick and Dirty Asset Allocation Calculator.

Details: These asset allocation tools are just clever Excel spreadsheets to show what investment portfolios look like currently, and what you want them to look like after your investing recommendations. It's a great 'quick and dirty' way to do something of value for investors who … portfolio asset allocation spreadsheet

› Verified 3 days ago

› Url: https://www.toolsformoney.com/asset_distribution_calculator.htm Go Now

› Get more: Portfolio asset allocation spreadsheetShow All

Free Portfolio Rebalancing Tool [Excel Template] White

Details: Next, type each of your asset classes into the first column. Everyone's asset allocation will look a little different. If you only have a single asset class (or use a single balanced, target retirement, or lifestrategy fund) then you don't need this spreadsheet at all. If you have two asset classes in your portfolio, you'll have two rows here. asset allocation worksheet

› Verified 8 days ago

› Url: https://www.whitecoatinvestor.com/portfolio-rebalancing-spreadsheet/ Go Now

› Get more: Asset allocation worksheetShow All

Asset Allocation Spreadsheet

Details: The reason you should start using this free asset allocation spreadsheet is simple: you will keep your money invested over the long term and watch it grow because it is invested in a way that matches your risk tolerance. Here are the features of my free asset allocation spreadsheet. Updates automatically so you don’t have to do any calculations. asset allocation calculator

› Verified 1 days ago

› Url: https://www.moneysmartguides.com/asset-allocation-spreadsheet Go Now

› Get more: Asset allocation calculatorShow All

Asset Allocation Calculator

Details: Our asset allocation tool shows you suggested portfolio breakdowns based on the risk profile that you choose. We use historical returns and standard deviations of stocks, bonds and cash to simulate what your return may be over time. We use a Monte Carlo simulation model to calculate the expected returns of 10,000 portfolios for each risk profile. portfolio allocation spreadsheet

› Verified Just Now

› Url: https://smartasset.com/investing/asset-allocation-calculator Go Now

› Get more: Portfolio allocation spreadsheetShow All

Portfolio Optimizer for Excel Hoadley

Details: Portfolio asset weights for each of these three risk-based allocation strategies, and the portfolio asset weights for the equivalent optimal MVO portfolio, are summarized in a single table together with the volatility, expected return, Sharpe ratio and measures of diversification for each portfolio. premium allocation spreadsheet

› Verified 4 days ago

› Url: https://www.hoadley.net/options/develtoolsoptimize.htm Go Now

› Get more: Premium allocation spreadsheetShow All

Build a Spreadsheet to Implement Your Asset Allocation

Details: How to Build an Asset Allocation Spreadsheet Step # 1 Open a Spreadsheet. You can do this using the ubiquitous Microsoft Excel or the free Google Sheets.There are other spreadsheet programs out there (Apple Numbers) and you can even build one by hand if you really want to.

› Verified 3 days ago

› Url: https://www.whitecoatinvestor.com/asset-allocation-spreadsheet/ Go Now

› Get more: How To Use ExcelShow All

Investment Portfolio Allocation–Excel Solver Go Beyond Excel

Details: Excel is great desktop business analytics software; we can use it to analyze many different business problems. And quite often, Excel has multiple ways to solve the problems; we can choose the one that we are more comfortable. For example, I used Solver Foundation to determine the investment portfolio allocation in one of my previous…

› Verified 2 days ago

› Url: https://algconsultings.wordpress.com/2011/03/05/investment-portfolio-allocationexcel-solver/ Go Now

› Get more: How To Use ExcelShow All

Free Portfolio Optimization

Details: This section of the worksheet allows you to enter the amount to invest and it will use the Optimal Portfolio weights to calculate the amount to invest in the Riskless Asset, Asset 1 and Asset 2. By entering the Expected Rate of Return, it uses the Risk Reward Trade Off Line to vary the proportion of the Portfolio of normal assets and Riskless

› Verified 9 days ago

› Url: https://www.spreadsheetml.com/finance/freeportfoliooptimization.shtml Go Now

› Get more: How To Use ExcelShow All

ASSET PORTFOLIO REBALANCING TOOL

Details: Rebalancing is the process of realigning the weightings of an asset portfolio. Rebalancing involves periodically buying or selling assets to maintain an original or desired level of asset allocation or risk. For example, say an original target asset allocation was 50% stocks and 50% bonds. If the stocks performed well during the period, it

› Verified 5 days ago

› Url: https://www.eloquens.com/tool/k9rluZwR/finance/personal-finance-excel-spreadsheets/asset-portfolio-rebalancing-tool Go Now

› Get more: How To Use ExcelShow All

Mean-Variance Portfolio Optimization with Excel

Details: This Excel spreadsheet implements Markowitz’s mean-variance theory. It optimizes asset allocation by finding the stock distribution that minimizes the standard deviation of the portfolio while maintaining the desired return.A series of sample stocks are included, but the spreadsheet can be adapted to other stocks selections.

› Verified 2 days ago

› Url: https://investexcel.net/mean-variance-portfolio-optimization-with-excel/ Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator

Details: Calculator. Share. Asset allocation is designed to help you create a balanced portfolio of investments. Your age, ability to tolerate risk and several other factors are used to calculate a desirable mix of stocks, bonds and cash. The calculated asset allocation is a great place to start your analysis in building a balanced portfolio.

› Verified 8 days ago

› Url: https://www.raymondjames.com/rj-th2-blue/resources/calculators/asset-allocator Go Now

› Get more: How To Use ExcelShow All

An Awesome (and Free) Investment Tracking Spreadsheet

Details: You’ll enter your asset allocation in the column labeled “My Target.” Note that the spreadsheet comes with five asset classes listed in rows three through seven. If you are using Excel

› Verified Just Now

› Url: https://www.doughroller.net/investing/an-awesome-and-free-investment-tracking-spreadsheet/ Go Now

› Get more: How To Use ExcelShow All

Asset Mix Worksheet Capital Group

Details: The spreadsheet provides asset allocation, market capitalization and fund category percentages for the portfolio; however, it should not be considered an exact analysis due to the tool’s limitations. Asset allocation data is as of June 30, 2021 (updated monthly — …

› Verified 6 days ago

› Url: https://www.capitalgroup.com/advisor/tools/planning/asset-mix-worksheet.html Go Now

› Get more: How To Use ExcelShow All

Allocation Effect

Details: The asset allocation return is the result of deviations from the asset class portfolio weights of the benchmark. The security selection return results from deviations from benchmark weights within asset classes. Allocation effect formula. The formula we need to use to decompose active returns is the following . where the weights are active weights.

› Verified 9 days ago

› Url: https://breakingdownfinance.com/finance-topics/performance-measurement/allocation-effect/ Go Now

› Get more: How To Use ExcelShow All

33 Free Investment Tracking Spreadsheets 💰 (Excel) ᐅ

Details: Use the information on your investment Excel template to plan your investment strategies. After determining your asset allocation target, use the information on the spreadsheet to compare your desired allocation against your actual or current allocation. This helps you make more informed decisions in terms of your investments.

› Verified 7 days ago

› Url: https://templatelab.com/investment-tracking-spreadsheets/ Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator

Details: The entire asset allocation rebalance calculator data can also copied to the Clipboard and pasted into a spreadsheet such as Microsoft Excel, or saved as a CSV file to be read by another application.

› Verified 5 days ago

› Url: https://www.moneythumb.com/asset-allocation-calculator/ Go Now

› Get more: How To Use ExcelShow All

Portfolio Optimization for Asset Allocation and

Details: The Excel portfolio optimization model combines asset allocation optimization and technical analysis constant optimization to maximize returns on financial investment portfolios. Historical financial data can be based on business cash flows or financial security …

› Verified Just Now

› Url: https://www.eloquens.com/tool/AdktZr/finance/portfolio-optimization-excel-models/portfolio-optimization-for-asset-allocation-and-rebalancing Go Now

› Get more: How To Use ExcelShow All

Optimal Asset Allocation on Excel – ARC University

Details: Asset Allocation. Now that we gathered all our data and sliced and diced them to our liking, we can finally determine the right asset allocation for each of our investments. Refer to Tab-2 of my Excel. We can start by simply allocating our $50,000 evenly across all four investments. With this allocation, we can calculate our portfolio expected

› Verified 7 days ago

› Url: https://arcuniversity.wordpress.com/2020/05/24/wharton-online-knowledge-optimal-asset-allocation/ Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator

Details: The Asset Allocation Calculator is designed to help create a balanced portfolio of investments. Age, ability to tolerate risk, and several other factors are used to calculate a desirable mix of

› Verified 9 days ago

› Url: https://www.bankrate.com/calculators/retirement/asset-allocation.aspx Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator for DIY Investors and Pro

Details: The asset allocation calculator is much more complex, and will take more time to create your investment portfolio, but it will match your life much better. You can hire us to manage your money, and/or advisers can hire us to manage their clients money, using our Model Portfolios and/or Asset Allocation Software .

› Verified 1 days ago

› Url: https://www.toolsformoney.com/asset_allocation_calculator.htm Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator: Asset Allocation Tool, Risk

Details: Asset Allocation Calculator. This tool will suggest an asset allocation for you across different asset classes based on your level of risk capacity and risk tolerance.

Black Litterman Model Excel Free

› Verified 4 days ago

› Url: https://www.moneycontrol.com/personal-finance/tools/asset-allocation-calculator.html Go Now

› Get more: How To Use ExcelShow All

asset allocation calculator excel

Details: asset allocation calculator excel. We do not accept paid/free guest post requests. Simply speaking, cause it to be making sure that any time you construct a good solid file using the template, you’ll be able to solely launch typing around data. The particular improvement is based on just how Excel contains some of those files, helping to make

› Verified 5 days ago

› Url: https://www.tasnimtf.com/forum/hjeok.php?tag=bcb80e-asset-allocation-calculator-excel Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator

Details: Once known, let InvestOnline.in’s Asset Allocation Calculator do its work. The proprietary algorithm analyzes the inputs to suggest the breakup of asset classes best suited for the investor. Using the Asset Allocation Calculator on Investonline.in The Asset Allocation Calculator is easy to use, intuitive to understand and is quick to perform.

› Verified 7 days ago

› Url: https://www.investonline.in/financial-calculators/asset-allocation-calculator Go Now

› Get more: How To Use ExcelShow All

How should I allocate my assets

Details: Over 90 percent of investment returns are determined by how investors allocate their assets versus security selection, market timing and other factors.* Use this calculator to help determine your portfolio allocation based on your propensity for risk. * Source: Brinson, Singer, and Beebower, 'Determinants of Portfolio Performance II: An Update,' Financial Analysts Journal, May-June 1991

› Verified 7 days ago

› Url: https://calcxml.com/calculators/inv01 Go Now

› Get more: How To Use ExcelShow All

NPS Calculator Excel-based (Free) Download

Details: The total allocation across E, G, C and A asset classes must be equal to 100%. And the maximum permitted Equity Investment is 75% of the total asset allocation till the age of 50. Post that, the upper cap reduces by about 2.5% every year to 50% at the age of 60. Auto – Under NPS Auto option, fund allocation takes place automatically. This

› Verified 9 days ago

› Url: https://stableinvestor.com/2019/07/nps-calculator-excel-download.html Go Now

› Get more: How To Use ExcelShow All

Simple Portfolio Rebalancing Spreadsheet Template (Google

Details: By using this spreadsheet, you can see which asset classes should be invested in currently to bring you back towards your target asset allocation. This is where you should invest any new cashflow (i.e. paycheck, dividends, rental income, or interest that your portfolio generates).

› Verified 8 days ago

› Url: https://www.mymoneyblog.com/simple-portfolio-rebalancing-spreadsheet-tool.html Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator

Details: Calculator. Share. Asset allocation is designed to help you create a balanced portfolio of investments. Your age, ability to tolerate risk and several other factors are used to calculate a desirable mix of stocks, bonds and cash. The calculated asset allocation is a great place to start your analysis in building a balanced portfolio.

Black Litterman Model Excel Model

› Verified 9 days ago

› Url: https://www.alexbrown.com/thecypressgroup/resources/calculators/asset-allocator Go Now

› Get more: How To Use ExcelShow All

Efficient Frontier using Excel (with MarketXLS Formulas)

Details: The Efficient frontier using excel is one of the most important financial tools that help an investor compose an investment portfolio with the maximum returns and minimum amount of risk. This article will discuss what it is, how it is then calculated, and how MarketXLS calculates it of your Portfolio. Get a Demo. Download the Demo Sheet.

› Verified 3 days ago

› Url: https://marketxls.com/efficient-frontier-using-excel/ Go Now

› Get more: How To Use ExcelShow All

Module 6d: Asset Allocation Spreadsheet

Details: Module 6d: Asset Allocation Spreadsheet. Asset allocation is the process of dividing your money among several investment categories, called asset classes. An example of an asset allocation is 50% stocks, 30% bonds, 10% real estate, and 10% cash assets. The objective of asset allocation is to lower your investment risk by reducing portfolio

› Verified 9 days ago

› Url: https://laterlifefarming.rutgers.edu/module06/asset-allocation-spreadsheet.html Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator, Asset allocation ToolAdvisorkhoj

Details: Asset Allocation Calculator, Asset Allocation Tool helps investment in Asset Allocation Fund and decide Asset Allocation Startegies. Your current Age (Years) 46-60 yrs

› Verified 6 days ago

› Url: https://www.advisorkhoj.com/tools-and-calculators/asset-allocation Go Now

› Get more: How To Use ExcelShow All

How To Maintain Proper Asset Allocation with Multiple

Details: Typically, if I'm helping someone put together the asset allocation for their portfolio, I'll use an Excel spreadsheet to balance out the various accounts. I was recently helping a family member, and they had a traditional brokerage account, 2 traditional IRAs (one for each spouse), 2 Roth IRAs, a pension for each of them that they would need

› Verified Just Now

› Url: https://thecollegeinvestor.com/11002/how-to-maintain-proper-asset-allocation-with-multiple-investing-accounts/ Go Now

› Get more: How To Use ExcelShow All

Tools and calculators

Details: The asset class will, however, appear in the Asset Allocation section of the report. Cash is one example, commodities are another. For example 'GLD' (SPDR® Gold) will be listed as 'other' in the Asset Allocation section and will not appear in the Stock Style Diversification section. T. Rowe Price. Investment Planning Tools and Calculators. You

› Verified 3 days ago

› Url: https://www.bogleheads.org/wiki/Tools_and_calculators Go Now

› Get more: How To Use ExcelShow All

Building EXCEL portfolio management worksheet

Details: With the allocation in place, we calculate portfolio returns by using the Excel SUMPRODUCT function. The SUMPRODUCT function multiplies two vectors. The portfolio allocation vector (the 5% placeholder values) with the daily security return series to calculate …

› Verified 8 days ago

› Url: https://financetrainingcourse.com/education/2016/11/building-excel-portfolio-management-worksheet/ Go Now

› Get more: How To Use ExcelShow All

All Of The Zimmer In Aachen Asset Allocation Calculator

Details: How to Calculate Goodwill - Video Tutorial, Examples, and Easy, Simple, Quick and Dirty Asset Allocation Calculator. Technical Analysis Excel Template with Trading Strategy Back Testing

› Verified 1 days ago

› Url: https://zimmer-in-aachen.de/asset-allocation-calculator-excel Go Now

› Get more: How To Use ExcelShow All

Guide and Spreadsheet for Investors

Details: Calculate the Correlation Matrix in Excel. This Excel spreadsheet contains a VBA function to calculate the matrix. The spreadsheet is simple to use. Step 1: Simple specify a matrix of N asset prices or returns. For this example, we have returns data for ATT, GMC, USX and US T-Bills in cells A5:D15: Step 2: Select a results range that is N rows

› Verified 3 days ago

› Url: https://investexcel.net/correlation-matrix-excel-vba/ Go Now

› Get more: How To Use ExcelShow All

Download Asset Allocation template to plan your financial

Details: How to use the asset allocation template. Shown below is the screenshot of the template. Col A shows the years after which money is needed. Each row refers to a different goal (see the video for details). Cols B to E show the assumed asset allocation for different asset classes. All numbers are variable. Cols F to I show the assumed return

› Verified 9 days ago

› Url: https://freefincal.com/asset-allocation-template/ Go Now

› Get more: How to useShow All

Adaptive Asset Allocation Policy Calculator

Details: The AAAP Calculator has been developed by FTSE Russell in conjunction with Professor William F. Sharpe* based on his research into the merits of publicising strategic asset allocation policies that adapt to market movements by taking into account changes in the outstanding market values of major asset classes. The AAAP Calculator provides users with a toolbox and series of charts to view the

› Verified 7 days ago

› Url: https://research.ftserussell.com/analytics/AAAP Go Now

› Get more: How To Use ExcelShow All

Best Spreadsheets for Your Retirement Planning

Details: Simpleplanning provides a detailed tax calculator that allows you to create a model of a complete tax return. The demo version is free, but the Complete Planner comes with other features. It has a built-in retirement planner, budget planner, net worth planner, and mortgage planner. The planner is fairly priced at $39.95. 2.

› Verified 1 days ago

› Url: https://www.thebalance.com/best-spreadsheets-for-your-retirement-planning-2388490 Go Now

› Get more: How To Use ExcelShow All

User Guide to FinaMetrica’s Asset Allocation Mappings

Details: This guide is intended to be read as you familiarise yourself with FinaMetrica’s Asset Allocation Mappings. You should print it and have the Gap Analysis calculator open, by clicking on the Gap Analysis icon in the Actions section or the Asset Allocation Mappings Excel file open as you read on. The guide is in two parts:

› Verified 7 days ago

› Url: http://www.enhanceifa.com/Asset%20Allocation%20Mappings%20Guide.pdf Go Now

› Get more: GuideShow All

Adaptive Asset Allocation Policy Calculator

Details: Adaptive Asset Allocation Policy Calculator . User Guide. Set your criteria using the control panel, i.e. choice of region, equity %, policy set month and the date range you want to view the impact of an AAAP over (NB: data is available from May 2000 to the present day).

› Verified Just Now

› Url: https://research.ftserussell.com/Analytics/AAAP/Content/docs/AAAP_User_Guide.pdf Go Now

› Get more: GuideShow All

Here Is The Most Easy To Use Portfolio Rebalance Tool

Details: Here Is The Most Easy To Use Portfolio Rebalance Tool. There are many advantages to rebalancing regularly: It automates your investment decisions, making your immune to biases that might otherwise hurt you.; Rebalancing sells assets that have gone up in value and buys assets that have gone down in value. This is precisely what you want to happen.

› Verified 8 days ago

› Url: https://www.portfolioeinstein.com/here-is-the-most-easy-to-use-portfolio-rebalance-tool/ Go Now

› Get more: How To Use ExcelShow All

Home Loan EMI Calculator (Free Excel sheet)

Details: This is loan EMI calculator excel sheet formula. Using the following values in the PMT formula in excel: Loan Tenure in Months = 25 years * 12 = 300 months. Monthly Interest Rate = 8%/12 = 0.666%. We get, PMT (0.006667, 300, 5000000) = Rs 38,591. That is, …

› Verified 4 days ago

› Url: https://stableinvestor.com/2020/07/home-loan-emi-calculator.html Go Now

› Get more: How To Use ExcelShow All

Asset Allocation Calculator

Details: Asset Allocation Calculator will be used by an individual to allocate their funds or investment in the different Asset classed depending upon their age, risk profile, life goals, etc. About Asset Allocation Calculator. The formula for Calculating Asset Allocation is per below:

› Verified 6 days ago

› Url: https://www.blogarama.com/guides-blogs/295345-free-investment-banking-tutorials-wallstreetmojo-blog/33913660-asset-allocation-calculator Go Now

› Get more: How To Use ExcelShow All

I mentioned in a previous post on how to get (nearly) live stock data from Google Finance. However, if you start pulling data from different markets, daily historical rates won’t make sense as different markets are closed on different days. This causes problems when trying to figure out the correlation between stocks. A solution to this is to pull monthly rates as the adjusted stock price for each month will be a better indicator of correlation.

Python has a great library called pandas_datareader that allows you to pull in historical information right into a pandas dataframe. The only downside is if an API is deprecated, your code breaks. Hence, I’ve elected to create this tutorial using Yahoo Finance’s Historical data download function. The objective of this article is to pull a large amount of worldwide historical data (over 20 years worth) and then use Modern Portfolio Theory (Mean Variance Optimization) to create an efficient frontier. The efficient frontier can help decide asset allocations in your portfolio based on a given risk tolerance and expected return.

Overview

The goal of the portfolio optimization is to retrieve an annualized expected return for a given risk tolerance. The return is associated with a portfolio of weightages (asset-allocation) to help decide investment strategies. The optimization strategy that will be used in this analysis is Modern Portfolio Theory (Markowitz, 1952), commonly known as Mean Variance Optimization (MVO) introduced by Harry Markowitz in 1952. The MVO model only takes into consideration historical results and thus is limited to that. It will not be able to account for other factors that could affect a model such as ‘views’ or insight into future market forecasts. A more robust model that could be incorporated in future optimizations is the Black-Litterman Model (Black & Litterman, 1992) that enhances the asset-allocation process by introducing user input for specific opinions on market returns.

Data Collection

Throughout this post, I will guide you through an excel workbook so you can understand exactly what is happening. If you’d like, you can download the excel workbook here.

In order to avoid high active management costs, I’ve elected to use Index Funds as the selected assets for the optimization. Market indices have the longest history of stock information and won’t have the risks of individual company stocks. Historically markets have grown and by using market indices, the expected return will be at the market average, which is far better than trying to outperform the market year after year. In addition, indices helped provide greater exposure, both in terms of geographic location and in terms of type of asset. The following indices were chosen for the optimization (Table 1).

[Excel Workbook sheet: Names]

Table 1. Breakdown of assets chosen for optimization

Since the investors will be Canadians, I look at the geographic outlook in three different areas: Canada, the US, and International. Also, by type of assets, a mixture of equity, fixed income, and commodities were chosen.

Since the optimization would look at upwards of 30 years in the future, the more data collected, the better. Data was collected from July 1^st, 1996 to March 1^st, 2018 to account for approximately 22 years of data. It was a trade-off to either get more years of data or exclude the fixed income funds due to the limited data available for those assets. To avoid inconsistent dates for data collection due to different market closures worldwide, monthly data was collected. This time frame covers a few market crashes including the Asian Financial Crisis (Michael & John, n.d.) in 1997, the Dotcom Crash (Beattie, Market Crashes: The Dotcom Crash (2000-2002), n.d.) from 2000-2002, and the Housing Bubble/Credit Crisis (Beattie, Market Crashes: Housing Bubble and Credit Crisis (2007-2009), n.d.) of 2007-2009.

Adjusted monthly close price was pulled from Yahoo Finance (Historical Stock Data) by applying filters to pull from the following parameters:

• Time Period: Jul 01, 1996 – Mar 1, 2018
• Show: Historical Prices
• Frequency: Monthly

Data for each asset was collected in that indices’ respective currency and outputted to a csv file. Currency conversion was not required as the percentage return was calculated for returns.

Optimization Process

Monthly Returns

[Excel Workbook sheet: Adjusted Closing]

The adjusted closing prices were taken from each index and then collated into a table.

[Excel Workbook sheet: Returns]

After that the monthly returns were calculated as a percentage by subtracting the closing price of a previous month form the closing price of the current month and then dividing that by the closing price of the previous month.

R_i = (ClosingPrice_i – Closing Price_i-1) / Closing Price_i-1

An average of the all the returns was taken to get the average monthly return for each asset. Then those averages were multiplied by 12 to get an annualized average return.

Covariance and Standard Deviation

[Excel Workbook sheet: Cov-STD-Cor]

A covariance matrix was created by comparing each asset with all the other respective assets. This matrix is essential in understanding the risk of each asset and how it relates to the others.

The standard deviation for each asset was taken by looking at the monthly returns. This was then used to calculate the correlation matrix.

The top part of this formula is the Covariance matrix in the excel workbook and the bottom part is the D Matrix. By dividing these two, you get the Correlation Matrix.

Correlation

Correlation is important in understand how similar two assets are. The higher the correlation, the more likely they are to move in the same direction. Negative correlation implies that if one asset goes up, the other will go down and vice versa.

As expected, assets have 100% correlation with themselves. In addition, the S&P500 (GSPC) is 95% correlated with the Dow Jones Industrial Exchange (DJI). This is intuitive as there is a lot of overlap between the two indices. Another interesting finding is that Treasury Bills are heavily negatively correlated with corporate bond indices.

Efficient Frontier

[Excel Workbook sheet: Efficient Frontier]

In order to create an efficient frontier, the expected return E(R_p) was maximized while constraining the standard deviation σ_p to specific values. The weights of each asset i, is w_i. The correlation coefficient ρ_ij is the correlation between assets i and j.

Before we do anything, it is important to remember to annualize the Expected Returns and Standard Deviations. Since we took monthly closing prices, multiple them by 12 as seen by cell A2 in this worksheet.

Excel’s Solver plugin was used to calculate these maximum points. If you don’t already have solver added in, go to File -> Options -> Add-Ins -> Manage: Excel Add-Ins Go -> Click Solver Add-in and select OK. If done correctly, you should now see the Solver option in the Data pane on excel.

The weightage of each asset was constrained to positive values to avoid short selling and with an upper bound of 20% to ensure diversification. The solver was run for multiple different iterations of Standard Deviation for the portfolio (STD_P) to get different points for the efficient frontier. After about 15 scenarios, the Expected Return of the Portfolio (E(R_P)) was graphed against the STD_P to get your efficient frontier. To ensure you get a nice frontier, be sure you maximize the Expected Return, but also minimize it. Of course you’ll only care about the maximum expected return because why would you want less money?

As expected, portfolios with a higher return were exclusively in equities which have higher risk and portfolios with the least amount of risk were heavily weighted into the fixed-income assets.

The optimal point with minimal risk is an annual Expected Return of 4.55% and a portfolio consisting of the following assets:

Works Cited

Beattie, A. (n.d.). Market Crashes: Housing Bubble and Credit Crisis (2007-2009). Retrieved from Investopedia: https://www.investopedia.com/features/crashes/crashes9.asp

Beattie, A. (n.d.). Market Crashes: The Dotcom Crash (2000-2002). Retrieved from Investopedia: https://www.investopedia.com/features/crashes/crashes8.asp

Black, F., & Litterman, R. (1992). Global Portfolio Optimization. Financial Analysis Journal, 28-43.

Historical Stock Data. (n.d.). Retrieved 03 16, 2017, from Yahoo Finance: https://finance.yahoo.com/quote/%5EN225/history?period1=975646800&period2=1521086400&interval=1mo&filter=history&frequency=1mo

Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 77-91.

Michael, C., & John, C. (n.d.). Asian Financial Crisis. Retrieved from Federal Reserve History: https://www.federalreservehistory.org/essays/asian_financial_crisis

Disclaimer — The material in this article is provided for informational purposes only. It is not a recommendation to buy or sell any security or implement any investment strategy.