Instant expected returns with the Expected Return Calculator

Presentation Outline

1. motivation
2. the app
3. computation with R
4. how it works
5. benefits

Motivation

• One of the most challenging decisions faced by individuals and institutions alike is how best to prepare for future financial needs
• Trading in assets are considered an attractive option for acheiving financial goals, with many companies offering company stocks as part of thier retirement packages.
• However overinvestment in a single product is a strategy that clearly should be avoided, as was illustrated by the financial ruin that befell thousands of Enron employees in January of 2002
• This app allows for the instantaneous calculation of a diversified portfolio, and its expected returns

The App

This app gives the user immediate feedback on the potential risks and rewards of diversifying thier portfolio. Imagine a smart employee at facebook, whose retirement funds are completely invested in company stock. It may be of interest to this employee to determine what effects diversifying her portfolio will have on her immediate and long-term financial prospects, and to evaluate the riskiness of her current single asset portfolio in comparison. This can easily be accomplished with the Expected Return Calculator

How it works

• the user selects the companies she is interested in
• the user selects the investment capital
• the optimal portfolio allocation is displayed, together with the expected return, and the portfolio risk-return profile
  Compute optimal investment proportions

require(stockPortfolio)
optimalPort(stockModel(getReturns(c("GOOG", "MSFT"))))$X

##    GOOG    MSFT 
## -0.4716  1.4716

Benefits

• real-time information: the user can make decisions based on the very lastest stock information
• ease in adjusting capital: the user can instantly observe the effects of investing more or less capital optimally among the assets
• two ways to view the data: some users will want to look at the efficient frontier, and some at the risk-return profile of the assets; both views are available