# Load packages

# Core
library(tidyverse)
library(tidyquant)

Goal

Visualize and examine changes in the underlying trend in the performance of your portfolio in terms of Sharpe Ratio.

Choose your stocks.

from 2012-12-31 to present

1 Import stock prices

symbols <- c ("AAPL", "NVDA", "CAT", "PANW", "MU")

prices <- tq_get(x = symbols,
                 get = "stockprices",
                 from = "2012-12-31",
                 to = "2017-12-31")

2 Convert prices to returns (monthly)

asset_returns_tbl <- prices %>% 
  
  group_by(symbol) %>%
  
  tq_transmute(select = adjusted, 
               mutate_fun = periodReturn, 
               period = "monthly", 
               type = "log") %>%
  
  slice(-1) %>%
  
  ungroup() %>%
  
  set_names(c("asset", "date", "returns"))

3 Assign a weight to each asset (change the weigting scheme)

# symbols
symbols <- asset_returns_tbl %>% distinct(asset) %>% pull()
symbols
## [1] "AAPL" "CAT"  "MU"   "NVDA" "PANW"
# weights
weights <- c(0.2, 0.2, 0.2, 0.2, 0.2)
weights 
## [1] 0.2 0.2 0.2 0.2 0.2
w_tbl <- tibble(symbols, weights)
w_tbl
## # A tibble: 5 × 2
##   symbols weights
##   <chr>     <dbl>
## 1 AAPL        0.2
## 2 CAT         0.2
## 3 MU          0.2
## 4 NVDA        0.2
## 5 PANW        0.2

4 Build a portfolio

# ?tq_portfolio

portfolio_returns_tbl <- asset_returns_tbl %>%
  
  tq_portfolio(assets_col = asset,
               returns_col = returns, 
               weights = w_tbl, 
               rebalance_on = "quarters",
               col_rename = "returns")

portfolio_returns_tbl
## # A tibble: 60 × 2
##    date         returns
##    <date>         <dbl>
##  1 2013-01-31  0.0295  
##  2 2013-02-28  0.0332  
##  3 2013-03-28  0.0176  
##  4 2013-04-30 -0.0105  
##  5 2013-05-31  0.0389  
##  6 2013-06-28 -0.0170  
##  7 2013-07-31  0.0484  
##  8 2013-08-30  0.0218  
##  9 2013-09-30  0.0421  
## 10 2013-10-31  0.000630
## # ℹ 50 more rows

5 Compute Sharpe Ratio

# Define risk free rate
rfr <- 0.0003

portfolio_SharpeRatio_tbl <- portfolio_returns_tbl %>%
  
  tq_performance(Ra = returns, 
                 performance_fun = SharpeRatio, 
                 Rf = rfr,
                 FUN = "StdDev")

portfolio_SharpeRatio_tbl
## # A tibble: 1 × 1
##   `SharpeRatio(Rf=0%,p=95%)`
##                        <dbl>
## 1                      0.473

Scatterplot of Returns around Risk Free Rate

portfolio_returns_tbl %>%
  
  # Add a new variable
  mutate(excess_returns = if_else(returns > rfr,
                                  "rfr_above",
                                  "rfr_below")) %>%
  # Plot
  ggplot(aes(x = date, y = returns)) +
  geom_point(aes(color = excess_returns)) + 
  geom_hline(yintercept = rfr, color = "cornflowerblue", linetype = 3, size = 1) +
  geom_vline(xintercept = as.Date("2019-02-19"),
             color = "cornflowerblue", size = 1, alpha = 0.5) +
  
  theme(legend.position = "none") +
  
  annotate(geom = "text", 
           x = as.Date("2019-06-19"), y = -0.05, 
           label = "Covid", size = 5, angle = 90) +
             
  annotate(geom = "text", 
           x = as.Date("2015-09-01"), y = -0.13, 
           label = str_glue("More volatile after COVID, 
                            with more of negative returns."), 
           color = "green") +
             
  labs(y = "monthly returns", x = NULL)

# Create a custom function to calculate rolling SR
Calculate_rolling_SharpeRatio <- function(data) {
  
  rolling_SR <- SharpeRatio(R = data, 
              Rf = rfr,
              FUN = "StdDev")
  
  return(rolling_SR)
}

# Define window
window <- 24

# Transform data: calculate rolling sharpe ratio
rolling_sr_tbl <- portfolio_returns_tbl %>%
  
  tq_mutate(select = returns, 
            mutate_fun = rollapply,
            width = window, 
            FUN = Calculate_rolling_SharpeRatio, 
            col_rename = "rolling_sr") %>%
  
  select(-returns) %>%
  na.omit()

rolling_sr_tbl
## # A tibble: 37 × 2
##    date       rolling_sr
##    <date>          <dbl>
##  1 2014-12-31      0.750
##  2 2015-01-30      0.612
##  3 2015-02-27      0.639
##  4 2015-03-31      0.561
##  5 2015-04-30      0.614
##  6 2015-05-29      0.607
##  7 2015-06-30      0.475
##  8 2015-07-31      0.423
##  9 2015-08-31      0.359
## 10 2015-09-30      0.309
## # ℹ 27 more rows
rolling_sr_tbl %>%
  
  ggplot(aes(x = date, y = rolling_sr)) +
  geom_line(color = "cornflowerblue") +

  # Labeling
  labs(x = NULL,
       y = "Rolling Sharpe Ratio") +
  
  annotate(geom = "text", 
           x = as.Date("2018-03-01"), y = 0.08,
           label = "Between 2015 to mid year 2016 this portfolio saw signifigant loss. However, since then the portfolio has made a signifigant bounce back into 2018", 
           color = "red", size = 2.75)

6 Plot: Rolling Sharpe Ratio

How has your portfolio performed over time? Provide dates of the structural breaks, if any. The Code Along Assignment 9 had one structural break in November 2016. What do you think the reason is?
The rolling 24-month Sharpe ratio shows three phases. It starts at its highest level (~0.75) in December 2014, declines steadily through 2015 to a low of about 0.05 in mid-2016, then recovers to about 0.60 by the end of 2017. The one structural break is in November 2016, when the downward trend reverses. This coincides with the U.S. presidential election and the shift to a reflation regime of higher yields and rotation into cyclical and growth assets, which favored holdings such as CAT, MU, and NVDA. The decline before the break partly reflects the strong 2013–2014 months leaving the 24-month window.