Project Rubics

OPIM 601: Quantitative Methods and Statistics

Project Rubics

Part 1: Optimal Allocation of Assets

In this part of the project, we have been given the monthly historical price series of four stocks – DBS Bank, SPH, Great Eastern and SIA and we are tasked to find the optimal mix of assets for an equity portfolio. We will be looking mainly at a few areas such as Sharpe Ratio, Coefficient of Variation, Box Plot, Drawdown, Skewness and Kurtosis to help us in making our decisions.

Sharpe Ratio

The Sharpe Ratio measures the risk adjusted return by dividing the excess return over a risk free rate by the standard deviation of the individual stocks. We have assumed the risk free rate to be 3% in this case, which is approximately the 10-year Singapore Government Bond average. Below is a summary of the Sharpe Ratio of the 4 stocks:

Figure 1: Table of Sharpe Ratio

  | DBS | SPH | GE | SIA |

Sharpe Ratio | 0.0645 | 0.0585 | 0.0747 | 0.0349 |

GE has the highest Sharpe Ratio and hence the best risk adjusted return. DBS is trailing closely behind followed by SPH and SIA is lagging in terms of risk adjusted returns. This supports GE's high allocation in the portfolio.

Coefficient of Variation

The Coefficient of Variation, on the other hand, measures the risk (variability) per unit of expected return (mean). In figure 2, the coefficient of variation of GE is the lowest while SIA is the highest among the stocks. The result indicates that less risk per unit of the monthly return is expected for GE than SIA. GE seems to be the more stable stock, follow by SPH, DBS and then SIA.

Figure 2: Coefficient of Variation

  | DBS | SPH | GE | SIA |

Coefficient of Variation | 11.035 | 10.845 | 9.981 | 14.625 |

Box plot

The box plot of the 4 stocks shows slightly conflicting results with SIA showing the best performance and DBS closing in as a second. SIA has an above average probability of achieving above median returns highlighted by the longer bar that represents...