Technical Details:


All performance numbers must be reported in Annualized terms (assume 250 trading days in the year).  Do not report daily numbers.


To annualize average of daily returns, multiply the avg by 250.

To annualize standard deviation (e.g. tracking error), multiply the daily SE by sqrt(250).


All performance numbers must be reported to 3 or 4 significant digits in percent or basis points.

For example, r = 0.334% or r = 33.4 bps, or IR = 1.56.

Do not round 1.74 to 2; and do not report r = 0.003.

Do not report r = 0.209809302%; round that to 0.2098%, or even better 20.98 BPs.


In your calculations, however, carry out each step with as many decimal places as you can (4 or 5 at absolute minimum).  Otherwise, interim rounding may cause your final answer to appear incorrect.  This is especially true for daily returns when doing the annualization.


When you calculate your Beta, beware you may get odd numbers (like -4.5 or 126).  As you know, portfolio betas should be somewhat close to 1, so that may seem like an error.  However, with only a few observations (as we have in these portfolios), strange numbers can occur.  So, check your work carefully, but it may be correct.  If after checking your work the beta looks correct, report that and use it for the Treynor and Jensen measures (and don’t forget there are two Benchmarks – S&P 500 and Class Portfolio – so you’ll have two betas).


There are two versions of the Sharpe ratio; the original which assumed a constant Risk-free rate, and the revised (modern) version, which allows the risk-free rate to change daily. Use the modern version (which we went over in class).


Report “Excess Return” and “Active Return” as we have discussed in class.


For all calculations requiring standard deviation, variance, or covariance (TE, Sharpe, Beta, etc), use the population version of the formula.  (e.g. if using Excel, that means using function STDEVP, rather than STDEV.)







English name:





          Performance Measurements (annualized):

Note technical details about reporting in % or basis points.


        SP 500   Class portfolio
        as benchmark   as benchmark
Gross return your portfolio        


Sharpe   _______________        
Active return            
Others? (if you wish, you may report other metrics you have found in your reading)







There can be a lot of overlap between these sections.  It is my intent that you try to tease apart the difference between strategy and performance.


½ page

Describe your strategy and how it evolved/changed during this assessment period (if it did).

I want a simple overall description of your strategy(s), not a blow-by-blow description of every change or trade.

             Portfolio Performance discussion, including specific performance of your Strategy

½ – 1 page (“less is more”)

Take the perspective of a portfolio manager wishing to improve the chance for a big bonus.  Describe/assess your portfolio performance. Use specific information from your portfolio – do not embellish with trivia.

Feel free to use evaluation methods or criteria discussed in the papers or textbook not mentioned above.


Include a table in the appendix showing your ending positions, categorized by sectors.



Please do not simply repeat info that is in the portfolio metrics table. (E.g. “My Shape ratio was 0.9, compared to the Treynor of 1.2 and Jensen of 1.5 …”)

Also, do not simply give a “laundry-list” of results of each metric.  That is, do not say “according to the IR …”., and “according to the Treynor ratio ….” and “my Sharpe ratio was …”.  Rather, according to the IR, Treynor and Sharpe ratios, we can see that ….”


I am interested in *interpretation*, not regurgitation.

So something like, ‘my Information ratio of 1.5 relative to the Class portfolio, indicates that my portfolio outperformed …’


Also, make sure you discuss your portfolio ‘core’ portion relative to your ‘active’ portion.


Please also do not discuss/explain performance technique or theory; this report is for an audience assumed to be familiar with these methods.




             Optimum portfolio

About ½ – page + table of weights


Using what you learned about your strategy and Core in the Main portfolio, what would be the optimum portfolio were you to rebalance now? Discuss.


For the purposes of this;

Use a Dow ETF, rather than all 30 stocks

If the active portion of your portfolio has more than 10 stocks, select the 10 largest (by holding weight) positions, and use those in the optimization.  This way, you can use the spreadsheets available on Stream.


You will need historical returns for each of your holdings, in order to calculate the covariance matrix. Bloomberg, yahoo, etc. I’ve found to the best free source of historical price data. Best practice for this is 5 years of monthly data, but you can use other time periods or granularity as long as you have enough data for statistical validity.

If some of your stocks have missing data, just eliminate those, but try to find a replacement stock in a similar industry or sector (if you’ll still have at least 10 stocks, you don’t need to find a replacement).


Make sure you include:

   Objective function

Table of var-cov matrix

Table of constraints and assumptions


Finally, provide a table of your portfolio holdings, showing weights & values before and after optimization, and show the trades needed to rebalance to the optimum portfolio.

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