Virginia Investment Partners Optimal Portfolio Allocation

6223 Case 4

Virginia investment partners optimal portfolio allocation

2.

赞成投资组合：favor of diversifying：

Through the calculation, we can know that the average monthly standard deviation of IBM is 9.4%, whereas the standard deviation of the portfolio is 2.76% that has low chances to deviate as compare to the IBM standard deviation. Also, the Coefficient of Variation of portfolio is smaller than IBM which means the measures of dispersion is lower. When I plot the graph for each month return and standard deviation of IBM and the portfolio, I find that the fluctuate for IBM is more violated which means the risk is higher than investment. Even though the total return for IBM is higher than the portfolio, IBM has more negative returns and the plot show that the annual return of the portfolio will attain the return of IBM. Therefore, the client should sell IBM and diversify into this portfolio.  

赞成多样化的论点是，与IBM标准偏差相比，它的偏离机会很小。 IBM标准差约为9.4％，高于当前VIP投资计划报价的每月标准差为2.76％。

不赞成投资组合：

Though the portfolio has lower standard deviation, it also generates a lower return as compare to IBM monthly return. IBM is generating an average monthly return of 1.27%, whereas the portfolio generates only 0.67%. IBM will not be in favor of such Investment plan because if their investment volatiles by the standard deviation rate, they will still generate more return than the portfolio.

另一方面，可以认为虽然投资组合具有较低的标准差，但与IBM的月回报相比，它产生的回报较低。 IBM的平均月回报率为1.27％，而VIP的投资计划报价仅为0.67％。 IBM不会赞成这样的投资计划，因为如果他们的投资按标准偏差率波动，他们仍然会产生比VIP投资计划更多的回报。

3.

At target standard deviation of 10% the investment plan will generate an average annual return of 8.23% where the Investment mix will be 54.44% of S&P 500, 13.54% of MSCI World and 32.02% of Lehman Brothers Bond. It has an inverse relation with Standard deviation. The more the Standard deviation the lesser will be the Return on Investment.

按目标标准差10％计算，投资计划的平均年回报率为8.9％，投资组合将为标准普尔500指数的49％，MSCI World的43％和雷曼兄弟债券的8％。它与标准偏差成反比关系。标准差越大，投资回报率就越小。

4.

4a) There is no any portfolio can get the target standard deviation of 2%. The minimum target standard deviation is 3.32% that the portfolio will generate an average annual return of 6.37% where the Investment mix will be 1.74% of S&P 500, 6.46% of MSCI World and 91.80% of Lehman Brothers Bond that are not diversified.

如果目标标准差为2％，投资计划将产生6.4％的平均年回报率，其中投资组合将为标准普尔500指数的5％，MSCI World的5％和雷曼兄弟债券的90％。

4b) There is no any portfolio can get the target standard deviation of 20%. The minimum target standard deviation is 3.32% that the portfolio will generate an average annual return of 6.37% where the Investment mix will be 1.74% of S&P 500, 6.46% of MSCI World and 91.80% of Lehman Brothers Bond that are not diversified.

当目标标准差为20％时，投资计划将产生8.8％的平均年回报率，其中投资组合将为MSCI World的100％。

4c) At target standard deviation of 14% the investment plan will generate an average annual return of 8.23% where the Investment mix will be the 77.68% of S&P 500 and 16.73% of MSCI World and 5.59% of Lehman Brothers Bond.

在目标标准差为14％时，投资计划将产生8.9％的平均年回报率，其中投资组合将是标准普尔500指数的8％和MSCI世界的92％。

4d.) At target standard deviation of 6% the investment plan will generate an average annual return of 7.35% where the Investment mix will be 29.49% of S&P 500, 10.39% of MSCI World and 60.12% of Lehman Brothers Bond.

当目标标准差为6％时，投资计划将产生7.7％的平均年回报率，其中投资组合将为标准普尔500指数的28％，MSCI World的25％和雷曼兄弟债券的47％。

5.

5.1) from the graph prepared to present IBM, it can be said that though, IBM is generating annual returns of 15%, at the same time IBM has a high standard deviation of around 32%. Now if IBM investment volatile with 32% than IBM will get a return of around 10.2%. Which is (15%/32%) -1 = around 53% reduction in return if the investment got riskier and deviate from its plan. Whereas in contract VIP’s Investment plan is less risky, as if their Investment Plan deviates from the expectation they will (9%/10%) -1 = lose around 10% of the expected return which is far better than the IBM’s Investment in Stock.

从IBM的图表来看，可以说IBM虽然年回报率为15％，但同时IBM的标准差偏差约为32％。现在，如果IBM投资波动率高于IBM的32％将获得约10.2％的回报。 如果投资风险更大且偏离计划，那么（15％/ 32％）-1 =回报减少约53％。 合同中VIP的投资计划风险较小，如果他们的投资计划偏离预期，他们将（9％/ 10％）-1 =损失约10％的预期收益，远远优于IBM的股票投资。

5.2) from the graph prepared to present IBM, it can be said that though, IBM is generating annual returns of 15%, at the same time IBM has a high standard deviation of around 32%. Now if IBM investment volatile with 32%, then IBM will get a return of around 10.2%. Which is (15%/32%) -1 = around 53% reduction in return if the investment got riskier and deviates from its plan. Where as in contract VIP’s Investment plan is less risky, as if their Investment Plan deviate from the expectation they will not lose more as here it is showing inverse relation in favor of Investment.

从准备提交给IBM的图表来看，可以说IBM虽然年回报率为15％，但同时IBM的标准差偏差约为32％。现在，如果IBM投资波动率为32％，那么IBM将获得约10.2％的回报。如果投资风险更大且偏离计划，那么（15％/ 32％）-1 =回报减少约53％。如果在合同中VIP的投资计划风险较小，就好像他们的投资计划偏离预期一样，他们不会损失更多，因为它在投资方面表现出相反的关系。

5.3) from the graph prepared to present IBM, it can be said that, IBM is generating annual returns of 15%, at the same time IBM has a high standard deviation of around 32%. Now if IBM investment volatile with 32% then IBM will get a return of around 10.2%. Which is (15%/32%) -1 = around 53% reduction in return if the investment got riskier and deviates from its plan. Where as in contract VIP’s Investment plan is less risky, as if their Investment Plan deviates from the expectation they will (8.84%/15.11%) -1 = lose around 41.50% of the expected return which is better than the IBM’s Investment in Stock.