HW Set on Mean Variance Optimization

Printed on Monday, May 11th 2015 at 1:30 pm

Constrained vs. unconstrained efficient frontier

During the in sample period of Jan 2001 to Dec 2007
20.00%
15.00%
Stdev

Impact of Non-Negativity Constraints

Stdev for that mean return
Mean
With Con Without
Difference
1.40%
9.14%
5.00%
4.14%
1.80%
5.73%
4.78%
0.94%
2.20%
4.92%
4.84%
0.08%
2.60%
5.18%
5.17%
0.01%
3.00%
5.73%
5.71%
0.01%
3.40%
6.50%
6.43%
0.07%
3.80%
7.50%
7.26%
0.24%
4.20%
8.68%
8.17%
0.52%
4.60%
10.00%
9.14%
0.86%
5.00%
11.51%
10.15%
1.36%
5.40%
13.66%
11.18%
2.47%
5.80%
16.29%
12.25%
4.05%
6.11%
18.66%
13.07%
5.59%

10.00%
5.00%
0.00%
1.00%

2.00%

3.00%

4.00%
Mean return

With Con

Page 1 of 4

Without

5.00%

6.00%

7.00%

Worksheet: Out of sample

Month
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10

Data: Monthly returns on 10 companies selected from the Nifty index

Asian Paints LDr. Reddy' I C I C I B I T C Ltd. Infosys Lt Larsen & TOil & Natu Reliance I Steel AuthoTata Motors Ltd.
0.1333
-0.2773
-0.0740
-0.0663
-0.1530
-0.1249
-0.2000
-0.1401
-0.2451
-0.0573
-0.1052
0.1029
-0.0510
0.0368
0.0328
-0.0344
0.0279
-0.0062
0.1846
0.0013
0.0761
0.0129
-0.2932
0.0173
-0.0700
-0.1378
-0.0360
-0.0802
-0.2718
-0.1109
0.0670
0.0537
0.1432
0.0661
0.2175
-0.0108
0.0535
0.1539
-0.0019
0.0671
0.0044
0.1463
-0.1035
-0.0097
0.1196
-0.0069
-0.1625
-0.0807
-0.1241
-0.1336
-0.1063
-0.0621
-0.2009
-0.1376
-0.1151
-0.2675
-0.0580
-0.1283
-0.1389
-0.2600
0.0480
-0.1503
0.0113
-0.0053
-0.0883
0.1926
0.2223
0.0536
0.0082
-0.0530
0.0206
0.0176
0.0543
0.0102
0.1046
-0.0045
0.0271
-0.0323
0.1098
0.0915
-0.0342
-0.1195
-0.2029
-0.0034
-0.2007
-0.0568
0.0107
-0.0875
-0.1819
-0.1937
-0.1957
-0.1570
-0.2554
-0.1749
-0.0065
-0.3402
-0.3530
-0.2944
-0.3375
-0.5070
-0.0684
-0.0063
-0.1181
0.1188
-0.1045
-0.0989
0.0369
-0.1752
-0.2122
-0.1926
0.0061
0.0970
0.2743
-0.0109
-0.1032
0.0639
-0.0385
0.0866
0.1628
0.1676
-0.1187
-0.0402
-0.0711
0.0489
0.1714
-0.1079
-0.0182
0.0737
0.0716
-0.0638
-0.0030
-0.1288
-0.2131
0.0164
-0.0577
-0.1108
0.0550
-0.0435
-0.0843
-0.0023
-0.0001
0.2510
0.0160
0.0097
0.0752
0.0939
0.1291
0.2044
0.2682
0.2076
0.1296
0.1113
0.4399
0.0220
0.1400
0.3097
0.1084
0.1846
0.1322
0.3522
0.2159
0.1886
0.5446
-0.0277
0.0635
0.5946
0.3521
0.2578
0.5815
0.3817
0.0998
0.2044
-0.0243
0.0387
0.1068
0.1181
-0.0872
-0.1094
-0.1248
-0.1369
0.1882
0.0519
0.0503
0.3064
0.1620
-0.0392
0.0907
-0.0336
0.1598
0.4499
-0.0079
-0.0334
-0.0097
-0.0733
0.0324
0.0406
0.0185
0.0254
-0.0722
0.1617
0.0039
0.2520
0.2083
0.0092
0.0822
0.0777
-0.0114
0.0980
0.0507
0.2072
0.1682
0.0188
-0.1287
0.0933
-0.0434
-0.0717
-0.0343
-0.1229
-0.0372
-0.0404
0.0228
0.1162
0.0974
0.0090
0.0785
0.0297
0.0600
0.1014
0.1981
0.1691
0.0700
0.0156
0.0105
-0.0245
0.0932
0.0390
-0.0181
0.0254
0.2260
0.1936
0.0306
-0.0235
-0.0532
-0.0026
-0.0483
-0.1513
-0.0693
-0.0407
-0.1125
-0.1228
-0.0228
0.0203
0.0503
-0.0716
0.0511
0.0986
0.0193
-0.0643
0.0186
0.0243
0.1265
0.1161
0.0921
0.1326
0.0054
0.0425
-0.0169
0.0973
0.1558
0.0654
0.0196
-0.0118
-0.0006
0.0106
0.0467
-0.0097
-0.0400
-0.0378
-0.1356
0.1516
0.0035
0.1142
-0.0879
0.0652
-0.0293
0.0101
0.1071
0.0116
-0.0541
-0.1348
0.1034
0.0338
-0.0076
0.0785
0.0500
0.1089
0.1311
0.0423
-0.0668
0.0311
0.1310
-0.0666
0.0501
0.0109
-0.0009
-0.0081
-0.0606
-0.0736
0.0586
0.0872
0.0612
0.0073
0.0805
0.0568
-0.0267
0.0108
0.0781
-0.0896
-0.0848
0.1938
-0.0360
0.0566
0.1383
0.0929
0.1240
0.1321
0.0497
0.0740
0.0986
0.0869
0.0092
0.1511
0.0450
-0.0398
-0.0258
-0.0123
-0.0712
0.1104
-0.0534
0.0555

Worksheet: Out of sample

Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13

-0.0145
0.0868
-0.1046
-0.0686
0.0521
0.0985
0.1293
0.0165
-0.0160
0.0485
-0.0391
0.0006
-0.0887
-0.0997
0.1554
0.0585
0.0225
0.0878
0.1403
-0.0331
-0.0633
-0.0004
0.0808
-0.0162
0.1186
0.0236
0.0155
-0.0509
0.1510
-0.0480
0.0388
-0.0466
0.0948
-0.1707
0.0910
0.1746

0.0766
-0.0693
-0.0232
-0.0482
0.0602
0.0152
-0.0289
-0.0520
0.0353
-0.0568
-0.0086
0.1265
-0.0558
0.0003
0.0709
-0.0278
0.0743
-0.0010
-0.0439
-0.0222
-0.0201
0.0388
-0.0190
0.0674
0.0358
0.0057
0.0471
-0.0837
0.0063
0.1481
0.0315
0.0606
0.0281
0.0051
0.0385
0.0316

-0.0180
0.0026
-0.1079
-0.0497
0.1497
-0.0016
-0.0254
0.0079
-0.0529
-0.1577
0.0025
0.0637
-0.2349
-0.0390
0.3177
0.0046
-0.0178
-0.0088
-0.1123
0.1484
0.0688
-0.0616
0.1736
-0.0081
0.0473
0.0349
0.0465
-0.1266
0.0046
0.1133
-0.0079
-0.0725
-0.1510
-0.1158
0.0994
0.2685

0.0041
0.0160
-0.0690
0.0394
0.0775
0.0563
0.0052
0.0497
0.0266
-0.0401
-0.0100
0.0765
-0.0584
0.0030
0.0132
0.0181
0.0927
0.0820
-0.0658
0.1288
-0.0029
0.0368
0.0177
0.0373
0.0565
-0.0392
0.0727
-0.0418
0.0497
0.0627
0.0336
-0.0457
0.0535
-0.0966
0.1027
-0.0159

0.0267
0.1284
-0.0944
-0.0387
0.0815
-0.1034
-0.0415
0.0448
-0.0462
-0.1560
0.0811
0.1360
-0.0941
0.0617
-0.0078
0.0501
-0.0059
-0.1410
-0.0133
0.0329
-0.1125
0.0605
0.0734
-0.0678
0.0313
-0.0485
0.2030
0.0421
-0.0061
-0.2263
0.0788
0.0361
0.1884
0.0459
-0.0299
0.0985

-0.0383
0.0150
-0.1708
-0.0689
0.0811
-0.0341
0.0293
0.1105
-0.0538
-0.0676
-0.1562
0.0409
-0.0998
-0.2181
0.3179
-0.0021
0.0007
-0.0628
-0.0442
0.1921
-0.0203
-0.0194
0.1891
0.0188
0.0252
-0.0364
-0.0406
-0.1129
-0.0012
0.1069
-0.0737
0.0051
-0.0974
-0.1447
0.0886
0.2345

-0.0451
0.0345
-0.0857
-0.0818
0.0775
0.0566
-0.0869
-0.0242
-0.0182
-0.0221
0.0106
0.0434
-0.0393
-0.0381
0.0758
0.0621
-0.0848
0.0063
-0.0624
0.1250
0.0042
-0.0355
0.0179
-0.0440
-0.0132
0.0115
0.2675
-0.0773
-0.0065
0.0491
0.0037
0.0098
-0.1220
-0.1429
0.0751
0.0965

-0.1009
0.0742
-0.1317
0.0489
0.0880
-0.0623
-0.0324
-0.0560
-0.0785
-0.0548
0.0329
0.0856
-0.1132
-0.1096
0.1792
0.0045
-0.0855
-0.0073
-0.0530
0.0457
0.0078
0.0307
0.0924
-0.0379
-0.0146
0.0578
0.0561
-0.0821
-0.0503
0.0198
0.0230
0.0698
0.0110
-0.0209
-0.0368
0.1122

-0.0901
0.0331
-0.1184
-0.0519
0.1118
-0.0607
-0.1174
-0.0220
-0.0811
-0.1460
-0.0209
0.0620
-0.2852
0.0162
0.2472
0.0148
-0.0863
0.0048
0.0069
-0.0498
-0.0530
-0.0886
0.0927
-0.0609
0.0069
0.1219
-0.0447
-0.1813
-0.1178
-0.0144
-0.0884
-0.0970
-0.1783
0.1091
0.0800
0.2352

0.0655
0.0594
-0.1233
-0.0561
0.1529
-0.0092
-0.1144
-0.0923
-0.0464
-0.2171
0.0511
0.2717
-0.1293
0.0341
0.3640
0.1116
0.0159
0.1500
-0.2639
0.0406
-0.0668
0.0356
0.1419
-0.0478
0.0734
0.1434
-0.0469
-0.0351
-0.0640
0.1146
0.0443
-0.1022
0.0327
0.0301
0.1111
0.1463

Worksheet: Out of sample

Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

-0.0664
-0.0271
-0.0373
0.0028
0.1585
-0.0781
0.0049
0.1702
0.0583
-0.0071
0.0086
0.0436
0.1335
0.0102

0.0116
0.0200
0.0296
0.1096
-0.1145
0.0555
-0.0907
0.0664
0.0704
0.0496
0.0956
-0.0190
0.1382
-0.0998

-0.0467
0.0282
-0.1011
0.0568
0.1927
-0.0013
0.1405
0.0001
0.0374
0.0581
-0.0792
0.1347
0.0785
0.0063

-0.0436
0.0045
0.0101
0.0078
0.0769
-0.0343
0.0029
-0.0489
0.0954
-0.0021
0.0419
-0.0405
0.0224
0.0153

0.0135
0.0391
0.0618
0.0334
-0.1417
-0.0311
-0.0759
0.1076
0.0344
0.0686
0.0414
0.0810
0.0762
-0.0951

0.0742
0.0232
-0.0788
0.1255
0.1462
0.0175
0.1943
0.1011
-0.1168
0.0157
-0.0447
0.1352
-0.0097
-0.0883

0.0184
-0.0341
-0.0462
0.0573
0.0939
0.0201
0.1632
0.1235
-0.0694
0.1003
-0.0608
-0.0083
-0.0636
-0.1003

-0.0672
0.0492
-0.0715
-0.0375
0.1635
0.0054
0.1377
-0.0463
-0.0088
-0.0077
-0.0531
0.0580
-0.0089
-0.1013

0.1029
0.0647
-0.1146
-0.1317
0.2819
-0.0553
0.2973
0.0851
-0.0748
-0.0774
-0.1413
0.1940
0.0716
-0.0730

0.0460
-0.0559
-0.0713
0.1928
-0.0439
0.0404
0.0007
0.0391
0.0358
0.1753
-0.0436
0.0671
-0.0044
-0.0711

Summary statistics:
Mean
Stdev

2.67%
8.51%

2.18%
8.87%

1.31%
13.81%

1.71%
6.49%

1.39%
9.25%

0.90%
13.18%

0.59%
9.70%

-0.14%
9.32%

-0.40%
14.94%

2.64%
15.06%

Lowest mean return

Highest mean return
Starting point for the grid
Increment for the grid
No. of points in the grid
12th point in the grid
Ending point for the grid

-0.40%
2.67%
-0.40%
0.26%
13
2.46%
2.67%