Project 3 : Active Investing and Multi-factor Models

Part 9:

Prepare a report for your Portfolio Manager which discusses your results, as well as the limitations of your analysis. Some suggestions of what could be covered in your report include: 

A brief discussion of the alpha of each stock in your active portfolio and why you believe it exists 

o How you constructed the active portfolio and allocated between it and the S&P500 ETF 

o A brief comment on the improvement in your Sharpe ratio arising from the addition of the active portfolio, compared to holding the S&P500 ETF alone 

o An examination of the differences in the results derived from the individual stock regressions compared to the active portfolio regression, referencing such statistical measures as the R2 and the alpha, and any other statistical measures you believe are relevant 

o A discussion of what happens to your R2 and alpha (including its significance), and any other statistical measures you believe are relevant, when the additional Carhart factors are added to the model, as well as an explanation for why you believe this occurs 

o A discussion of the differences between your multi-factor model individual stock results and your multi-factor model portfolio result 

o Consideration of any limitations or shortcomings you believe exist in your models, addressing issues such as the risk weighting methodology, allocation methodologies, concentration issues and the unconstrained nature of the outcomes