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MGMT20005-Business Decision Analysis
Assignment 2: Group Assignment

Weight: 25% of the total mark.

Format: PowerPoint file (.pptx/.pdf) + Recorded presentation (.mp4) + Excel workbook (.xlsx).

Due date: 6pm Friday, Week 11.

Submission: Only one submission (with all your files) is required for each group. Make sure you include the names and student numbers for all team members on the front slide of your PowerPoint file submission, otherwise, a penalty will be applied!

Late submission: It will attract a marking penalty. A 10% penalty will be applied for every day of late submission for up to 3 days. Assignments submitted later than 3 days after the due date will not be marked and will receive no mark.

Extension request: No extension will be provided for this assignment (since this is a group submission, no extension will be provided even for individual work).

Submission format and word limit:

1. Prepare your submission using Microsoft PowerPoint (or similar presentation software). You can use up to 30 slides and up to 2,500 words in your slides altogether (excluding figures, tables, references, and appendices, however the 30 slides limit still applies). Your slides should be well-organised, coherent, and visually appealing. Note that it is important to cover all below the requirements in your submission.

2. A maximum of 5-minute recorded presentation outlining your analysis and assessment of your portfolio optimisation methods used. You may choose to use the same deck of slides that you and your group have puttogether (or a revised slide deck) if you find this suitable and appropriate for the 5-minute presentation. Youmust submit an .mp4 file (or similar) for your video presentation and it is a requirement to show your face/s in your presentation recording.

Assignment Details

This assignment is designed to let you explore and evaluate a number of approaches for portfolio optimisation, using live real-world data from the Yahoo finance website. The relevant URL for finding stock prices is https://au.finance.yahoo.com/. Under the “Quote lookup”, you can search for the industry/business you are interested in to explore investment (assets).

Portfolio Optimisation - Risk and Return: An investment portfolio consists of a collection of investment items (or stocks or assets) held by an individual or organisation, in which the investor seeks to purchase a variety of assets to gain a good return (profit) through increasing assets value. Individual assets vary in value from minute to minute, and whilst over time, they might grow in value, their value fluctuates over time. The possibility of such fluctuations represents a risk to the investor. Accordingly in portfolio selection, investors should wisely choose to invest across a range of assets, ideally those total value is less liable to fluctuation than the individual assets.

In this assignment, you are required to use asset return data from a period of 4 years to identify the optimumportfolio using a variety of different optimisation methods. The assignment report (slides) should include three main sections: Preliminary Work, Optimisation Models and Conclusion. The requirements of each part are detailed below.

The breakdown of marks (a total of 25) is given on this document and as a Rubric in Canvas.

The first stage is to identify a set of 12 investment items from which you will subsequently determine optimum portfolios using various optimisation models. You may select any global assets (including indices) whose data is provided on the Yahoo finance website. After you searched for the stock under the “Quote lookup”, go to the “Historical data” tab, then choose the appropriate Time period, and Frequency before downloading the data.

Note: If you have problem to download data from Yahoo, you can copy and paste the data directly from thewebsite into an Excel document.

• Each must have at least 48 months (August 2020 - August 2024) of monthly data available, up to andincluding August 2024.
• They should be selected from any 4 different sectors/categories of your choice (let’s call them S1, S2, S3,and S4) e.g., banking, pharmaceuticals, media, technology, government bonds, property trusts, etc., with at least 2 assets in each category. Provide clear justification and reasoning for your choices.
• You need to calculate the monthly return of each asset by (Stock_value_new –
• Stock_value_old)/(Stock_value_old). Then the average return of an asset is the mean of return of that assetover 48 months. Similarly, the risk is calculated as the standard deviation of return over 48 months. A sample Excel file is provided that includes sample data with the calculation of return and risk.
• Data should span a reasonable range of volatilities/risks. Classify the assets into 4 groups according to(ascending) risk (let’s call them R1, R2, R3, and R4). A simple classification approach would be to calculate the standard deviation of each asset (as explained in the previous dot point) and define risk categoriesbased on the 4 quartiles. Therefore, R1 should include investment stocks with the lowest risk (lowest standard deviation).
• Recall that each asset lies in one of the Rs and in one of the Ss.

Optimisation Models

• LP model (9 marks: Mathematical Model + Excel Solver and Reports + Discussion): In this approach, the aim is to achieve the maximum overall return of the portfolio, subject to specified requirements on risk mix (percentagesin R1 to R4) and category mix (percentages in S1 to S4). Note that the overall return of a portfolio (or its expected MGMT20005-Business Decision Analysisreturn) is calculated as a weighted average of the expected returns of all assets, where the weights represent theproportions of the portfolio that should be invested in each asset.

The following investment guidelines are to be applied to the Linear Programming model: (1) Investment in thehighest-risk assets shouldn’t exceed 15% of the portfolio, while the lowest risk (or equal lowest) assets shouldhave the highest (equal or highest) investments among all other risk categories, (2) To ensure diversification, eachsector category must have a minimum of 15% invested; apart from one sector that you choose (your discretion)to have a minimum of 25% invested, (3) The minimum investment in each asset should be 5%.

Use Excel’s reports to comment on binding constraints, and the impacts of changes to the risk and categoryconstraints on the optimum portfolio (sensitivity analysis). Further, if an asset(s) is not selected in your optimalsolution, explain how much its return should be changed, so that asset can be included in your optimal selection.

• ILP model (5 marks: Mathematical Model + Excel Solver and Discussion): In this approach, we assume that abalanced portfolio of exactly 7 stocks is to be chosen. The 4 asset categories (the S classification) must beincluded. In addition, at most 1 of the assets can be in the riskiest group, and at least 2 must be in the least riskygroup. Finally, an asset from R3 can be selected only if at least one asset from R2 is selected.

Conclusion (4 marks: comparison + conclusion + overall presentation)

Recorded 5-minute Presentation (4 marks)

Your task is to create a concise 5-minute recorded presentation about portfolio optimisation strategies. You can imagine you are addressing a distinguished panel of executives at a leading investment firm. Begin byproviding a comprehensive overview of your carefully selected 12 investment items, showcasing your keenunderstanding of the market landscape. Afterward, briefly explain a preferred portfolio optimisation strategy,providing reasons for your choice and including a summary table comparing each selected portfolio. Thispresentation should showcase your understanding of investment strategies and your ability to communicate themeffectively. You may choose to use the same deck of slides that you and your group have put together to supportyour presentation, if you find this suitable and appropriate.

Begin by providing an overview of your investment items and then assess the two approaches you have examinedabove using real-time data from Yahoo Finance. Afterward, briefly explain a preferred portfolio optimisationstrategy, providing reasons for your choice and including a summary table comparing each selected portfolio. Thispresentation should showcase your understanding of investment strategies and your ability to communicate themeffectively. You may choose to use the same deck of slides that you and your group have put together to supportyour presentation, if you find this suitable and appropriate. MGMT20005-Business Decision Analysis

Marking guide

It is important to pay special attention to spelling, grammar, and punctuation to avoid ambiguity and confusion.

Students can include relevant graphs, tables, and other exhibits such as appendices. They must be clearly labelled andwill not be included in the word count.

- Discussion board (Canvas): as other students can also benefit from your questions and replies.

- Consultation: with prior arrangement with your tutor or lecturer.