Nandan RaghavanStockTrak Report

The ubiquitous spread and development of information technologies is a central

element of the 21st century, which has seen formerly fledgling firms such as Google and

Amazon ascend to positions of unrivaled value. Newer technological advancements have

only served to make the field of information technology more enticing. Informational

technologies are utilized across a variety of sectors to streamline business processes among a

host of other purposes. The prevalence of informational technologies has spawned numerous

lucrative investment opportunities within this sector. The management of investments within

this burgeoning sector serves as the basis of our fund.

Our management approach primarily involved passive asset management, and our

focus was to select reliable initial securities. We conducted a thorough and methodical search

process over a number of securities within technological sectors. In an additional effort to

minimize risk, we decided to invest exclusively in equities that were included in the S&P

500. Due to the consistency and reputation of this index we remained confident with our

security selections. When considering purchasing a stock, we closely studied the trend in

pricing within the 5 days and 1 month prior to the purchase date. Following this, we

conducted some research on the firm’s area of specialization to identify any systematic risk

factors.

The objective of our portfolio was initially to see a return of 5% higher than the S&P

500. However, during the early stages of investing, markets were down, so we settled on

what we felt was a more achievable rate of 2% higher than the S&P 500.

The above chart gives the final allocation of funds among the securities that we

invested in. It is important to note that this chart shows only the final allocation of assets.

When we started out, we only invested in Google. After a few days of trading, we invested in

additional securities. Since we did not diversify well enough initially, the portfolio returns

ended up being skewed by negative returns from a poorly diversified portfolio.

Looking at the beta values for the stocks that we invested, a number of them were

below the market average of 1. Yamana Gold, IBM, Verizon, and Wal-Mart all had beta

values lower than one, which made us believe that the systematic risk within our portfolio

would be decreased. However, this was negated by beta values considerably higher than 1 for

the rest of our equities, and the portfolio beta value was 1.003. Intuitively, one would believe

that the portfolio return would have been similar to the CAPM expected return, since beta

was very close to 1. As mentioned earlier, less than optimal portfolio diversification skewed

our results, leaving us with a return of -0.082%. On an interesting note, excising the first five

days of trading from the record, the return was -0.019%. The chart below shows the total

profit and loss for each stock in the portfolio.

Since the CAPM model provides an estimate for the portfolio return, we want to know

how much this expected return deviates from the actual realized return. This is where the

alpha term in the CAPM equation comes into use. Portfolios with a positive alpha term

perform better than the CAPM expectation, while portfolios with a negative alpha value are

viewed as underperforming. Our portfolio had an alpha of -3.179%, which indicated that it

severely underperformed the market expectation. Despite this, our portfolio return ended up

being higher than that of the S&P 500, as shown in the graph below. However, it seems likely

that this was mostly due to a depressed market. The Jensen ratio is the same as the alpha

value, and in this case, it just indicates that our portfolio underperformed market

expectations. A similar conclusion can be derived from the Sharpe ratio, which shows the

difference in returns for risky and risk free assets with respect to inherent risk. Our portfolio

consisted of ten equities, as is evidenced by the table below. When performing security

analysis, we examined how share price ran in the last 5 days as well as its trend for one

month. What’s more, the average price is another factor that we focus on. We need to make a

hypothesis that if this stock will return to the average price. Like IBM increase continually at

past, but the average price still stays in a low section. Since that, we cannot purchase a lot

because the risk for IBM is uninsurable. In addition, we should make the relationship

between the paid price and our asset be balance. We need to purchase at least 10 stocks and

the total asset we have is 500000 dollars. The most important thing for us is to analysis how

the risky degree that stock had and how many percent of our asset should us to invest for.

Because that the result we focus on is the total profit of all those 10 stocks. Stocks are the

things that running in our real world and there are so many uncertain factor happens every

day.