Initial commit

.gitignore

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+.DS_Store

README.md

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+# Modern Portfolio Theory with R
+A demo on how different portfolios perform against a market index. Note: Currently does not work because for some reason my method of parsing Yahoo Finance doesn't work anymore.
+
+## Screenshots
+![Results](/results.png)
+
+## Todo
+* Add a better legend to distinguish different portfolios
+* Add a sample csv so people can replicate results on their machines

projectcode.r

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+#######project1 is for Exercise A#######
+#######test is for Exercise B#######
+
+####Load up data
+library(stockPortfolio)
+ticker <- c("ATVI", "TTWO", "WMT", "KNM", "NTDOY", "EXPO", "JCP", "TW", "HURN", "KSS", "JNJ", "TJX", "NVS", "RMTI", "GSK", "AEL", "PRU", "SLF", "MFC", "MET", "F", "HMC", "ZAAP", "DDS", "TTM", "^GSPC")
+
+project1 <- getReturns(ticker, start='2005-12-31', end = '2010-12-31')
+####3 month Risk-free rate & 6 month Risk-free rate
+Rf1 = 0.0004 
+Rf2 = 0.0008
+####
+
+#Exercise A 
+#1
+cmarko <- stockModel(project1, Rf = Rf1, model = "none", drop=26)
+opcmarko <- optimalPort(cmarko)
+opcmarko
+plot(opcmarko, xlim=c(0,0.5), ylim=c(-0.01,0.16), main="Efficiency Frontier using Markowitz Model")
+slope <- (opcmarko$risk-Rf1)/opcmarko$risk
+segments(0,Rf1,2*opcmarko$risk,Rf1+slope*2*opcmarko$R)
+points(opcmarko$risk, opcmarko$R, pch=19, col="green") #Point of tangency
+text(opcmarko$risk+0.002, opcmarko$R-0.0005, "Point of Tangency", cex = 0.5)
+opcmarko$R #Expected return at point
+opcmarko$risk #risk at point
+
+#2
+portPossCurve(cmarko,add=TRUE, riskRange = 9)
+
+#3 equal allocation
+x3 = rep(1/25, times = 25)
+rbar3 =  cmarko$R %*% x3
+sd3 = (t(x3) %*% cmarko$COV %*% x3)^0.5
+points(sd3, rbar3)
+text(sd3+0.002, rbar3-0.0005, "Equal Allocation", cex = 0.5)
+
+#4 assume SIM holds, Rf borrowing & lending exists, use excess return to beta ratio
+csim <- stockModel(project1, model = "SIM", Rf= Rf1, index=26, shortSelling = FALSE)
+opcsim <- optimalPort(csim, Rf = Rf1, shortSell = FALSE)
+opcsim$X
+opcsim$R
+opcsim$risk
+opcsimA <- csim$alpha %*% opcsim$X
+opcsimB <- csim$beta %*% opcsim$X
+points(opcsim$risk, opcsim$R)
+text(opcsim$risk+0.002, opcsim$R-0.0005, "SIM without short sales", cex = 0.5)
+
+csimss <- stockModel(project1, Rf = Rf1, model = "SIM", index=26, shortSelling = TRUE)
+opcsimss <- optimalPort(csimss, Rf=Rf1, shortSell = TRUE)
+opcsimss$X
+opcsimss$R
+opcsimss$risk
+opcsimssA <- csimss$alpha %*% opcsimss$X
+opcsimssB <- csimss$beta %*% opcsimss$X
+points(opcsimss$risk, opcsimss$R)
+text(opcsimss$risk+0.002, opcsimss$R-0.0005, "SIM with short sales", cex = 0.5)
+
+#5 constant correlation model
+ccm <- stockModel(project1, model = "CCM", Rf= Rf1, shortSelling = FALSE)
+opccm <- optimalPort(ccm, Rf = Rf1, shortSell = FALSE)
+opccm$X
+opccm$R
+opccm$risk
+points(opccm$risk, opccm$R)
+text(opccm$risk+0.002, opccm$R-0.0005, "CCM without short sales", cex = 0.5)
+
+ccmss <- stockModel(project1, model = "CCM", Rf= Rf1, shortSelling = TRUE)
+opccmss <- optimalPort(ccmss, Rf = Rf1, shortSell = TRUE)
+opccmss$X
+opccmss$R
+opccmss$risk
+points(opccmss$risk, opccmss$R)
+text(opccmss$risk+0.002, opccmss$R-0.0005, "CCM with short sales", cex = 0.5)
+
+#6 multigroup model
+ind <- c('Multimedia & Graphics Software','Multimedia & Graphics Software','Department Stores','Multimedia & Graphics Software','Multimedia & Graphics Software', 'Management Services','Department Stores','Management Services','Management Services','Department Stores','Drug Manufacturers','Department Stores','Drug Manufacturers','Drug Manufacturers','Drug Manufacturers','Life Insurance','Life Insurance','Life Insurance','Life Insurance','Life Insurance','Auto Manufacturers','Auto Manufacturers','Auto Manufacturers','Department Stores','Auto Manufacturers','Index')
+data <- as.data.frame(cbind(ticker, ind))
+ticker <- data$ticker
+ind <- data$ind
+
+cmgmss <- stockModel(project1, model = "MGM", Rf= Rf1, industry = ind, drop=26)
+opcmgmss <- optimalPort(cmgmss, Rf = Rf1)
+opcmgmss$X
+opcmgmss$R
+opcmgmss$risk
+points(opcmgmss$risk, opcmgmss$R)
+text(opcmgmss$risk+0.002, opcmgmss$R-0.0005, "MGM with short sales", cex = 0.5)
+
+#7 Graph
+plot(opcmarko, xlim=c(0,0.5), ylim=c(-0.01,0.16), main="Risk and Returns of Portfolios")
+slope <- (opcmarko$risk-Rf1)/opcmarko$risk
+segments(0,Rf1,2*opcmarko$risk,Rf1+slope*2*opcmarko$R)
+points(opcmarko$risk, opcmarko$R, pch=19, col="green") #Point of tangency
+text(opcmarko$risk+0.002, opcmarko$R-0.0005, "Point of Tangency", cex = 0.5)
+points(sd3, rbar3)
+text(sd3+0.002, rbar3-0.0005, "Equal Allocation", cex = 0.5)
+points(opcsim$risk, opcsim$R)
+text(opcsim$risk+0.002, opcsim$R-0.0005, "SIM without short sales", cex = 0.5)
+points(opcsimss$risk, opcsimss$R)
+text(opcsimss$risk+0.002, opcsimss$R-0.0005, "SIM with short sales", cex = 0.5)
+points(opccmss$risk, opccmss$R)
+text(opccmss$risk+0.002, opccmss$R-0.0005, "CCM with short sales", cex = 0.5)
+points(opcmgmss$risk, opcmgmss$R)
+text(opcmgmss$risk+0.002, opcmgmss$R-0.0005, "MGM with short sales", cex = 0.5)
+
+#Exercise B
+#Test Period
+#504a50riskfree
+opcsim50 <- opcsim
+opcsim50$X <- opcsim50$X/2
+opcsim50$X[26] <- as.numeric(0.5)
+opcsim50$R <- (opcsim50$R)/2+(0.5*Rf1)
+opcsim50$risk <- (opcsim50$risk)/2
+
+test <- getReturns(ticker, start='2010-12-31', end = '2013-03-31')
+test1 <- test
+test1$R <- cbind(test1$R, rep(Rf1, times=27))
+
+tpEqu <- testPort(test$R[,-26], X=rep(1/25,25))
+tpopsim1 <- testPort(test, opcsim)
+tpopsim50<- testPort(test1, opcsim50)
+tpopccm1 <- testPort(test, opccm)
+tpopmgm1 <- testPort(test, opcmgmss)
+
+#Fixing tpopsim50
+tpopsim50$sumRet[26] <- 1
+
+#Generate the time plots:
+plot(cumprod(1+rev(test$R[,26])),ylim=c(0,2.5),ylab = "Returns", lty=1, col="pink", type="l", main="Portfolio Performance from 2010-12-31 to 2013-3-31")
+lines(tpEqu, lty=2, col="black")
+lines(tpopsim1, lty=3, col="green")
+lines(tpopsim50, lty=4, col="red")
+lines(tpopccm1, lty=5, col="yellow")
+lines(tpopmgm1, lty=6, col="grey")
+
+#Add a legend:
+legend('topleft', lty=1:6, c('Market', 'Equal Allocation', 'SIM NO SS', '50 SIM 50 RF', 'CCM NO SS', 'MGM_SS'), col=c("pink", "black", "green", "red", "yellow", "grey"))
+
+
+#RESULTS AND DISCUSSION
+
+opcmarko$X
+opcmarko$R
+opcmarko$risk
+
+x3
+rbar3
+sd3
+
+opcsim$X
+opcsim$R
+opcsim$risk
+opcsimA
+opcsimB
+
+opcsimss$X
+opcsimss$R
+opcsimss$risk
+opcsimssA
+opcsimssB
+
+opccm$X
+opccm$R
+opccm$risk
+
+opccmss$X
+opccmss$R
+opccmss$risk
+
+opcmgmss$X
+opcmgmss$R
+opcmgmss$risk
+