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How Do I Use the Portfolio Analysis Modules?

To the left you can see three primary buttons:  Restart, Data Analysis and Portfolio

Restart gets you back to the base for reading in data or changing the set of securities you want to study.  Changing the set of securities is as simple as changing the blank (i.e., not selected) above a security name to Yes (i.e., selected) with a single click of the mouse.  Finally, click OK to update the list of securities selected.

You can also read in a new data set by linking to a new Excel spreadsheet.

How Do I Get Started?

Step 1:  Open up your Excel Spreadsheet.  If you have downloaded the spreadsheet, webs.xls, from the the Generation III page then you can open this spreadsheet now.  The following example will refer to this sheet.

Step 2:  Give the focus back to the Portfolio Analysis Module and click on the button "Find Excel Worksheets."  Next use the drop down menu to select the spreadsheet that contains the historical data.  This is titled "Webs" which is the last spreadsheet in the drop down menu. Select this sheet by clicking on this item.

Step 3:  Now you must tell the Module where the data is located.  Names are in Row 1, Data is in rows 2-203, Data columns are B to S and the data is in Price Data form.  Enter this information into the module.  

In this current example there is no Interest Rate Data or Index Data so leave these two checkboxes unchecked, and now click on the button Initialize.

Step 4:  Select all securities by double clicking above EWA.  You will see Yes appear to indicate each security is selected.  If you did not want all you can toggle between Yes and off by clicking immediately above the security name.

Now click on OK and you will observe the historical data has now populated the Grid below and is in a form ready for analysis.

Step 5:  Click on the button Data Analysis.  

Important Note:  To try out features first change Depicted Weights to Equally Weighted.  This will let you try out the features using a naively diversified (i.e., equally weighted) portfolio. 

Data Analysis lets you apply portfolio statistics to either individual or any subset (i.e., portfolio) of securities from the securities you are studying.  The objective of this function is to let you perform an analysis of the risk and return properties of different positions.

Try out some functions such as plotting returns, plotting return histograms, doing Value-at-Risk analysis.  You can also do this for individual securities by Selecting Depicted Weights (i.e., changing the Equally Weighted to Depicted Weights).  If you want to select an individual security type in 1 below the security name in the weight cell.

Data analysis also works nicely in conjunction with the next function, Portfolios.  By using the Portfolios function you can apply modern portfolio theory to construct a portfolio (i.e., identify your portfolio weights).  You can then use Data Analysis to examine further the risk and return properties of this portfolio.

Portfolios provides a powerful set of portfolio construction functions.  

First, you can apply modern portfolio theory using techniques, pioneered by Markowitz, to engineer portfolios that have different risk and return properties.

Second, you can use this module to calculate betas, relative to the index you provide, and construct portfolios from it's beta analysis.  You will also be able to compute optimal tracking portfolios relative to the Index you supply.

Third, you can perform backtesting experiments to check out what the realized return from a strategy you select.  

Fourth, you can examine the dynamic behavior of the minimum variance frontier over the time period you have selected to study.  This permits you to extend the application of modern portfolio theory to incorporate important intertemporal properties of risk and return when engineering a portfolio.

Finally, you can study the realized behavior of the equity premium over the time period covered.  This lets you appreciate the realized (i.e., ex post) behavior of this important measure.  You need to have historical interest rate data for this exercise.  

For the data set provided, webs.xls, try out some of the functions.  Later lessons will walk users through some actual real world analyses.


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