# Load packages

# Core
library(tidyverse)
library(tidyquant)

Goal

Visualize and examine changes in the underlying trend in the downside risk of your portfolio in terms of kurtosis.

Choose your stocks.

from 2012-12-31 to present

1 Import stock prices

symbols <- c("MCD", "WEN", "YUM", "DPZ", "SBUX")

prices <- tq_get(x    = symbols,
                 get  = "stock.prices",
                 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] "DPZ"  "MCD"  "SBUX" "WEN"  "YUM"
# 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 DPZ         0.2
## 2 MCD         0.2
## 3 SBUX        0.2
## 4 WEN         0.2
## 5 YUM         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 = "months",
                 col_rename = "returns")

portfolio_returns_tbl
## # A tibble: 60 × 2
##    date        returns
##    <date>        <dbl>
##  1 2013-01-31  0.0524 
##  2 2013-02-28  0.0273 
##  3 2013-03-28  0.0496 
##  4 2013-04-30  0.0226 
##  5 2013-05-31  0.0218 
##  6 2013-06-28  0.00976
##  7 2013-07-31  0.0804 
##  8 2013-08-30 -0.00594
##  9 2013-09-30  0.0690 
## 10 2013-10-31  0.00341
## # … with 50 more rows

5 Compute kurtosis

portfolio_kurt_tidyquant_builtin_percent <- portfolio_returns_tbl %>%
    
    tq_performance(Ra = returns,
                   performance_fun = table.Stats) %>%
    
    select(Kurtosis)

portfolio_kurt_tidyquant_builtin_percent
## # A tibble: 1 × 1
##   Kurtosis
##      <dbl>
## 1    0.301

6 Plot: Rolling kurtosis

# Assign a value for window
window = 24

# Transform data: calculate 24 month rolling kurtosis
rolling_kurt_tbl <- portfolio_returns_tbl %>%
    
    tq_mutate(select     = returns,
              mutate_fun = rollapply,
              width      = window,
              FUN        = kurtosis,
              col_rename = "kurt") %>%
    
    na.omit() %>%
    select(-returns)

# Plot 
rolling_kurt_tbl %>%
    
    ggplot(aes(x = date,
               y = kurt)) +
    geom_line(color = "cornflowerblue") +
    
    # Formatting 
    scale_y_continuous(breaks = seq(-1, 4, 0.5)) +
    scale_x_date(breaks = scales::pretty_breaks(n = 7)) +
    theme(plot.title = element_text(hjust = 0.5)) +
    
    # Labeling 
    labs(x = NULL,
         y = "kurtosis",
         title = paste0("Rolling", window, "Month Kurtosis")) + 
    
    annotate(geom  = "text",
             x     = as.Date("2016-07-01"),
             y     = 3,
             size  = 5,
             color = "red",
             label = str_glue("Downside risk skyrocketed toward the end of 2017"))

Has the downside risk of your portfolio increased or decreased over time? Explain using the plot you created. You may also refer to the skewness of the returns distribution you plotted in the previous assignment.

Looking at my portfolio, it is still relatively true that downside risk did skyrocket near the end of 2017. However, it was not as intense of a skyrocket as the example portfolio. The downside risk of this portfolio seems to steadily climb from 2015 to 2016. It drops sharply from the beginning of 2016 to the to end, before climbing steadily again for another year and then steeply dropping again. This portfolio seems relatively risky based on kurtosis as it seems to have periods of intense downside risk followed by slow periods.