Goal

Visualize expected returns and risk to make it easier to compare the performance of multiple assets and portfolios.

Choose your stocks.

from 2012-12-31 to 2017-12-31

1 Import stock prices

2 Convert prices to returns

3 Assign a weight to each asset

4 Build a portfolio

## # A tibble: 60 × 2
##    date        returns
##    <date>        <dbl>
##  1 2013-01-31  0.0377 
##  2 2013-02-28 -0.0251 
##  3 2013-03-28  0.0228 
##  4 2013-04-30  0.0212 
##  5 2013-05-31  0.00831
##  6 2013-06-28 -0.0257 
##  7 2013-07-31  0.0481 
##  8 2013-08-30 -0.0144 
##  9 2013-09-30  0.0200 
## 10 2013-10-31  0.0457 
## # ℹ 50 more rows

5 Compute Standard Deviation

## # A tibble: 1 × 2
##    Stdev tq_sd
##    <dbl> <dbl>
## 1 0.0507  5.07

6 Plot

## # A tibble: 60 × 2
##    date        returns
##    <date>        <dbl>
##  1 2013-01-31  0.0377 
##  2 2013-02-28 -0.0251 
##  3 2013-03-28  0.0228 
##  4 2013-04-30  0.0212 
##  5 2013-05-31  0.00831
##  6 2013-06-28 -0.0257 
##  7 2013-07-31  0.0481 
##  8 2013-08-30 -0.0144 
##  9 2013-09-30  0.0200 
## 10 2013-10-31  0.0457 
## # ℹ 50 more rows

How should you expect your portfolio to perform relative to its assets in the portfolio? Would you invest all your money in any of the individual stocks instead of the portfolio? Discuss both in terms of expected return and risk.

My portfolio’s expected return is roughly a weighted average of the individual stocks expected returns. In my results, it falls between the best and worst performing stock, which is exactly what we would expect for a long only portfolio. The portfolios sd is lower than simply holding one of the individual stocks, but the reduction is modest because all 5 companies are in the same industry and are all correlated through oil prices. After reviewing this information I would not invest all of my money into any of the individual stocks. The portfolio offers similar expected returns but with lower total risk.