Your objective is to create the opening positions for your StockTrak $1m Trading account. You are required to justify the weights for the portfolio you will manage over the next 2 weeks in your Trading Assignment.
1) Your portfolio weights must be based on the following 5 asset classes: cash, equities, bonds, currencies, commodities
2) No portfolio weighting can be less than 5% or more than 50% when you create your portfolio. This can change during the 2 week period if you want it to, otherwise you will need to rebalance your portfolio after one week’s trade – see the JP Morgan hand out on portfolio rebalancing techniques.
3) Your equity allocation must contain some aspect of international diversification
4) Create a table that outlines your weights for each asset class. You must present a coherent story based around your historical analysis of each asset class performance over the last 12 months and also some forecasting guidance. Try to summarize opportunities and risks.
5) Create one correlation matrix and a rolling correlation graph for each asset class and discuss what impact that has on the risk/return structure of your portfolio.
6) Create a table on the beta of your portfolio (use the last 12 months to calculate your beta value for each asset class and use the S&P500 as your benchmark market). Discuss what impact your portfolio beta value will have on your portfolios return against the market in your next two weeks of trading.
7) Make sure you make reference to both the Traditional and Modern Portfolio Theory of portfolio management
8) Implement trades in StockTrak to mimic your proposed portfolio. Take a screenshot of your opening trades and include in your report.
Your portfolio will be an “active” trading account as opposed to a “passive” trading account. Each student starts with 100 transactions. In your account you must establish a minimum of 30 trades during the 2 week trading period. Your strategy should incorporate the use of a range of different order types including market, limit and stop orders. Optional: Your strategy can include trading on the international exchange operations; however, you must have some basic understanding of those markets.
Your trading should include trades in as many financial instruments as possible such as equities, bonds, ETF’s, options (call and put) and futures (equity, currency and commodity based).
Make sure you address the following tasks when completing your final report.
Task 1: Make sure you set up your portfolio following the rules outlined earlier and you answer the 8 questions related to the creation of a diversified portfolio. Make a copy of the positions you have opened in StockTrak and briefly explain the rationale behind each trade.
Task 2: Set prices that you wish these positions to be closed.
Task 3: Present a log of your trades with detailed explanations/justifications driving the trade (media reports, economic data, company specific data etc)
Task 4: Graph your portfolio value over the two week period and benchmark it against the S&P500. On a separate graph, track your portfolio alpha over the two week period.
Task 5: Identify and discuss your top and bottom few trades and why you think they succeeded/failed? What lessons did you learn from your trades that lost money?
Task 6: Discuss how your knowledge of the StockTrak Trading Platform may (or may not) influence your personal investment strategy moving forward in your life.