Project 11 You are a finance professional who is managing stock portfolios and related investment strategies

Project 11

You are a finance professional who is managing stock portfolios and related investment strategies. By the end of 2020 calendar year, you are given a duty to construct a portfolio of large cap US stocks in the Healthcare sector. There are some constraints for the portfolio:

1. Construct the portfolio in a way to minimize expected volatility.
2. A stock cannot be more than 10% of the overall portfolio.
3. Number of Stocks are not to exceed 30.
4. Prefer stocks with highest Distance-to-Default measure. Rebalance every 12 months.

PART A.

1. How would your portfolio perform in the past 10 years if you used the same factors and constraints on each rebalance?

Present a back-test of your optimized portfolio.

Show the return statistics and their comparison to related benchmarks.

When was the worst performance?

2. What has been the beta of your stock portfolio to the market benchmark over the past 5 years?
3. What are the latest (current) constituents of the portfolio? What are their weights?
4. Which names in the current portfolio were historically the 3 most volatile stocks in the 2018-20 period?
5. Which names in the current portfolio were historically the 3 least volatile stocks in the 2018-20 period?

PART B.

1. What is Distance-to-Default measure? Shortly explain its origin and formulation.
2. In your portfolio, which companies have the highest and lowest D-t-D measure? What factors determine the difference? Collect data on Debt, Assets, Volatility etc. to compare and contrast the companies.
3. What are the credit ratings and 5Y CDS levels for the two companies above? Are they consistent with the D-t-D data?