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Excel Help for Wierd Result in Excel Portfolio Optimization Template


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Wierd Result

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Confusedhello, i have 2 questions for using the program:
1) we notice that if we change the prices for all the stocks we check (12) by equal number' for example the price is 15 and we multiplie it by 3, but we do it for all of the prices the results changes. maybe it is more correct to bring all the prices in the beggining of the period to the same level, let's say 100?
2) the result that came out for the optimal portfolio is wierd because the stdev is higher than one of the stocks while the annual return is lower from this specific stock, maybe we do something wrong?
thank you for your help,
oded
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Shocked
Units and Optimized portfolio
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Thanks for the post and in response to your issues:
  1. To calculate the current weightings of the portfolio the program multiples the final observation price by the number of units for each investment.  If return data is used, then only the unit value is used.
  2. The optimization process returns the optimal Sharpe ratio for the entire portfolio (return to risk).  Since this takes into account all investments in the portfolio and the correlation between them, the result will differ from that of the individual investments in the portfolio.  In the case that you detail, it would indicate that a higher weighting should be allocated to the investment with high return and low standard deviation; however this will also be dependent on any constraints entered and the relationships with other investments in the portfolio as mentioned above.
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Confused
answer
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thank you for your quick answer,
we don't have any constraints and it all between 0 to 100% and still we don't understand why the return is lower than one of the stocks and the stdev is higher in the optimal than this stock. in this situation why not to take just this stock in the portfolio.
another wuestion is about the number of the units: if we start in 1 unit for all stocks and in the optimal we end with for example: 0.1 unit for this stock and 3 units for that stock so what does it mean?
thank you.
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Sad
Optimization results
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Theoretically the optimal portfolio should consist of only the investment which has both the lowest standard deviavtion and highest return of all other investments.  Since the program runs random iterations of weightings, it could be that such an iteration was not examined.  In this case, you can increase the number if iterations in cell E4 of the CoVar sheet prior to running the optimization.

For unit changes: 1 to 0.3 means liquidate 70% of the investment, 1 to 3 means triple the capital in that investment.
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