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 (monthly)

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

## [1] "AMZN" "GOOG" "NFLX"
## [1] 0.4 0.3 0.3
## # A tibble: 3 × 2
##   symbols weights
##   <chr>     <dbl>
## 1 AMZN        0.4
## 2 GOOG        0.3
## 3 NFLX        0.3

4 Build a portfolio

## # A tibble: 60 × 2
##    date       portfolio.returns
##    <date>                 <dbl>
##  1 2013-01-31           0.216  
##  2 2013-02-28           0.0545 
##  3 2013-03-28           0.00262
##  4 2013-04-30           0.0315 
##  5 2013-05-31           0.0539 
##  6 2013-06-28          -0.00525
##  7 2013-07-31           0.0791 
##  8 2013-08-30           0.00290
##  9 2013-09-30           0.0784 
## 10 2013-10-31           0.122  
## # … with 50 more rows

5 Compute Standard Deviation

## # A tibble: 1 × 2
##    Stdev  tq_sd
##    <dbl>  <dbl>
## 1 0.0691 0.0691
## [1] 0.02907971

6 Plot: Expected Returns versus Risk

## # A tibble: 4 × 3
##   asset       Mean  Stdev
##   <chr>      <dbl>  <dbl>
## 1 AMZN      0.0257 0.0739
## 2 GOOG      0.0181 0.0535
## 3 NFLX      0.0446 0.133 
## 4 Portfolio 0.0291 0.0691

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.

I would expect my portfolio to be a much safer and bet, with a higher expected return when compared to my other stocks. NFLX is too risky and has a large Stdev, GOOG is a safer choice, but has a small mean rate of return, and AMZN is in the middle with a moderate expected return and moderate Stdev. When all 3 are combined, it makes for a safer and higher expected return. I would Invest almost all of my money into the portfolio, and maybe save a small percentage of funds for NFLX just in case it has a breakaway growth month or two for the potential profit. The risk is low when looking at buying in on the portfolio but there is also a relatively small expected growth rate overall. The small NFLX buy is extremely risky, but there is also a lot of room for growth.