Abstract

Using the R library to calculate the VaR for my investment portfolio which is Kinetics Paradigm Fund No Load Class (WWNPX). Value at risk (VaR) is a statistic that quantifies the extent of possible financial losses during Sep 2023.

Scenario: Case 1

You are a new graduate from a major university and have gotten a job at a major investment firm. Your starting base salary is $125,000 per annum and you have received a signing bonus of $25,000. Your company offers a 401k investment firm with a maximum allowed annual contribution of 10% of your gross salary and a matching contribution of 10% of your contribution. You have a student loan debt outstanding of $70,000 at an interest rate of 2.5% / annum on the unpaid balance.

Breakdown of monthly income:

Total Income 5208

Tax + 401k 2208

Take Home Paycheck 3000

Monthly Living Cost -2000

Money to invest 1000

401k + Matching 1040

Like I mention on previous submission, I was thinking to spend the rest of the money to buy S&P 500 Trust, however, I decided to open an investment account from BOA and buy mutual fund product, and add $1000 into it every month.

After looking into it under yahoo, i pick WWNPX since it is the top mutual fund on that day.

Pick the stock

However, I am interested about the S&P 500 Trust as well since that is my back up plan. So I would like to pick both WWNPX and SPY to see which has a greater risk in value, and how their ROI over Sep 2023

symbol_name2 <- c("WWNPX","SPY")

Then I look at the day range from 9/1 to 9/29 since I want to see the overall performace for Sep 2023.

Calculate value at risk

The we calculate the Value at risk by using VaR() funtion with 95% confidence interval in Historical Method. As we can see S&P 500 has lower risk than the mutual fund. The risk of loss for S&P 500 trust in Sep 2023 is -1.5%, and the WWNPX has double of risk which is -3.7%.

It is better to invest into SPY to control the level of risk exposure. It is important to have control over risk since investor may not have enough cash when they see new opportunity. People often try to sell the current stock to switch to the new investment when they see the light of hope. lower VAR can affect the future investment since the captial is getting smaller by loss more on the low VAR product.

Does that mean SPY is better for new graduate student? I think it is okay for new graduate student to bear more risk, and often higher risk mean higher return.

##           WWNPX         SPY
## VaR -0.03662466 -0.01508019

Does that mean I made a wrong decision at the begining? So I look at the ROI. it actually show that WWNPX doing better. However, you can see S&P 500 is more stable over the month.

charts.PerformanceSummary(return2_a)

https://www.econstor.eu/bitstream/10419/162507/1/882060589.pdf https://cran.r-project.org/web/packages/PerformanceAnalytics/vignettes/PerformanceAnalyticsChartsPresentation-Meielisalp-2007.pdf