GeWorko method lets you build the perfect combination of asset from a collection of instruments. In this piece, we’d like to bring attention to that stock market, pick a few stocks and then create a chart of the portfolio created and examine its performance in the last few years.Branding
As is well-known as the financial crisis that began in 2008 has had severe consequences for the world’s financial system as well as significant losses for investors. For over four and a quarter years, the world was trying to get back on track, but just recently, signs of economic growth in the world’s biggest economy that is the United States – have begun to emerge.Creative Agency
One of the most storied and most popular stock market indices the Dow Jones Industrial Average Dow Jones Industrial Average- until March 2013 did it manage completely recover to hit its pre-crisis level of the autumn of 2007, over the 14,000 point mark. In the course of a year and one-half years (Fall 2007-Spring 2009) the index fell by one-half of its value. was able to take four years for the index to gain back the positions it lost.
With the aid of GeWorko method, we’ll try to find out if there was a portfolio of shares to ensure that our investment within U.S. stocks from impairment in the event of a crisis and also to assess its financial viability.
As is widely known, during the crisis in the financial sector, financial firms had the greatest impact. To this end, out of all the stocks that are part of Dow Jones Industrial Average, Dow Jones Industrial Average we chose stocks from companies in other economic sectors specifically, companies engaged in the production of consumer goods, the development and production of high-tech items food production as well as media companies. These were the companies included in our study (with suitable random weights):Design Agency
1. Walt Disney Company (DIS – 20 percent)
2. Home Depot Inc. (HD – 20 20%)
3. Honeywell International Inc. (HON – 15 percent)
4. International Business Machines Corporation (IBM – 15 15%)
6. McDonald’s Corporation (MCD – 20 20%)
Through the GeWorko method, a portfolio can be constructed from the above mentioned six securities, with defined weights. Let’s say that the current amount of portfolio value is 10,000, then $2,000 is put into Walt Disney Company, Home Depot and McDonald’s Corporation (total investment of $6,000) and 1500 dollars to Honeywell International and International Business Machines Corporation.Digital Agency
The graph of the Portfolio lets you retrospectively evaluate its performance and its profitability over the last few years. The years prior to the crisis of 2007 and 2008, the worth of the Portfolio was less than the amount at U.S. $ 6200, and in the midst of the crisis, it decreased down to 3673 USD. It is possible to draw the first conclusions. First The worth of the portfolio during the time of crisis dropped by 40%, indicating the same result as that of the Dow Jones Industrial Average. Dow Jones Industrial Average. Additionally, a complete return to the value of the portfolio was not a matter of more than one year. In the period following the crisis, the portfolio grew by more than 170 percent (the number is calculated using the latest value in relation to the value at its minimum that was in place at March of 2009).
Of course, the worth of the portfolio that was created was severely impacted by the financial crisis, however its quick recovery is amazing and provides the hope of seeing positive results in the coming years.
The next stage of our research will be focused on the comparison of the portfolio’s dynamics with market dynamics. In our scenario it will take the form of the Dow Jones Industrial Average. We’ve noticed that the portfolio had less negative results in the financial crisis, and also an earlier recovery. Let’s draw a graph of the portfolio in relation to the index to confirm our belief of a greater returns from investing in the portfolio than the index, and then see how the portfolio has performed higher than the market.
For it, PCI will be used to build the identical portfolio of stocks that has the same asset weights as well as the present value of U.S. $10,000 is constructed. In the quote, the portfolio of $10,000 is put into this index Dow Jones Industrial Average.
Based on the chart above it appears that the portfolio has been consistently beating the market. In the years since 2006 we see a continuous growth in the structure. In other words, prior to and throughout the recession, and even during times of recovery, the portfolio was either lower than the index or even grew more in comparison to the index. In assessing the performance of the portfolio in relation to the index using a qualitative approach this portfolio has outperformed the index by approximately 10% per year for the last five years.
The process of building portfolios It is also known as is a significant benefit in the way it diversifies risk. Quantitatively, it is about finding the right balance between returns and volatility. Scatter plots of realized returns and standard deviations can help to understand the advantages of diversification. In the last five years the Dow Jones Industrial Average index Dow Jones Industrial Average showed an average annual return of 4 percent, and a standard deviation of returns of 20 percent. We designed a portfolio that is with the same amount of uncertainty (the same 20 percent as the standard deviation) however, it has significantly higher rates of return, with the average was 13% annually.
However the stocks of the companies we chose showed greater than the index, profits and profitability, however the measure of risk in terms a standard deviation proved to be different from the index. For instance, the standard deviation of returns for Home Depot stocks was the most (32 percent), McDonald’s stocks – the lowest (18 percent). The issue of balancing risk and return is largely based on the individual’s personal characteristics as well as the requirements for return on portfolios and the ability to take on the risk. In general both concepts have an intimate relationship. The higher the requirement for return, the greater the risk. In this instance we have not yet have the responsibility of determining the best portfolio, but the challenge of constructing an asset portfolio that could consistently beat the market at the very least in the last few years, is now completed.
Utilizing the GeWorko technique, we could also construct a relative dynamics of the value of all the stocks we consider with respect with the Index Dow Jones Industrial Average. However, none of these charts showed an as “smooth” growth curves, like our portfolio. Additionally, “drawdowns” or protracted intervals of side movement could be seen within these chart charts.
At the start of the research, we tried to choose the stocks that make up this index Dow Jones Industrial Average, that has risen quickly following the 2008 financial crisis and not as affected by the economic crisis. Through the GeWorko method, we have gotten an investment portfolio that is guaranteed to be optimized and has shown a significant rise in post-crisis periods.
But, when looking at the dynamic of the portfolio against the index’s dynamics an additional interesting result was found. Utilizing similar PCI we found a fairly steady growth structure, which suggests that the portfolio hasn’t just had a substantial increase following the crisis, but was consistently beating the index both prior to and during the recession, and even during recovery too.