I would appreciate the help to know what topics I have to discuss to get good po
ID: 2816266 • Letter: I
Question
I would appreciate the help to know what topics I have to discuss to get good points on this. I know I have to discuss standard deviation, negative covariance in stocks, and what else? thank you.
the objective is to select three stocks you think are complementary with respect to risk—that is, the stocks either are negatively related or have a low positive relationship. You should select companies you believe can combined to form a portfolio with “below-average” risk.
1. Identify the stocks you have chosen, and briefly discuss the industry, or line of business, in which each company should be classified.
2. Discuss why you believe the companies can be combined to produce a portfolio with a below-average level of risk.
3. Briefly discuss why you believe holding the stocks you have chosen will help to weather significant swings that could possibly occur in the stock markets during the next few years.
Explanation / Answer
Start with the process of portfolio construction and the focus on diversification in terms of types of assets and the different assets in each asset class. Also, if the focus is possible try and include international diversification. Then talk about expected return, variance, covariance of the assets and prepare an efficient frontier. Do a sensitivity and scenario analysis to showcase that in-depth analysis has been done to choose these assets. The include the aspect of risk in terms of std. dev, VAR, expected shortfall. The include the investor risk and return objectives and choose the portfolio which will enable to whether the swings and cater to the investors needs which includes talking about the minimum variance frontier. To find the most optimal asst you would've to refer to the CAL and CML.
I guess this shuld cover most of the topics you are looking to use to answer the aforementioned questions.