VBA Programming Portfolio Analysis


Your objective is to build an application to perform the analysis of a two-asset portfolio.

The input data consists in two tables containing the dates and adjusted close prices of two different assets. There is a third table with the same data for a risk-free asset: you will use it to calculate the Sharpe ratio.

The most commonly used risk-adjusted performance measure in finance is the Sharpe Ratio. It relies on volatility as risk measure and considering historical returns. The Sharpe Ratio is usually computed as:

Where denotes the sample average of realised returns, the constant return over the risk-free asset and the sample volatility of portfolio returns.

Minimum requirements of your application:

  1. Your application should at least allow the user to:

x Fill a table with weight of asset #1 in the portfolio (ranging from 0-100%), expected portfolio returns, portfolio standard deviations and portfolio variances;

x Calculate the Sharpe Ratio risk-adjusted performance measures for each portfolio; x Fill a pre-created graph with data in order to show the efficient frontier; x Calculate the weight of each asset in the minimum variance portfolio.

  1. Everything can be done from a Graphical User Interface (GUI), with no need to execute macros manually (you must use Excel Userforms to build the GUI).
  2. Allow users to select increments of weights for the portfolio formation.
  3. The portfolios table must contain formulas (and not just values) everywhere it is possible to use one. To this aim, your Excel file must contain the following User-Defined Functions (UDF) (you must respect EXACLTY the following syntax):

portfolio_mean_return(asset1_prices As Range, asset2_prices As Range, proportionAsset1 As Double) As Variant portfolio_variance(asset1_prices As Range, asset2_prices As Range, proportionAsset1 As Double) As Variant sharpe_ratio(asset1_prices As Range, asset2_prices As Range, proportionAsset1 As Double, risk_free_prices As Range) As Variant minimum_variance_portfolio(rangeA As Range, rangeB As Range) As Variant

  1. The input data of your UDF’s must be adjusted close prices. It means that the returns of each asset must be calculated in arrays within your macros.
  2. The return value of the function minimum_variance_portfolio is the proportion of the asset represented by the first parameter giving the minimum variance portfolio.
  3. You must make a robust error checking (check input from user for correctness), both for the parameters of your UDF’s and for the user input in the userforms.
  4. Your workbook must contain sample data of your choice (typically, monthly close prices of 2 assets of your choice over 5 or 6 years, and the corresponding price of a risk-free asset of your choice).
  5. Your application must be generic and easy to reuse on different data sets. To put it clearly, your VBA application will be tested on a third sample of data.

General recommendations

Read these carefully as they impact your final grade.

  1. You must use the template Excel file available on Black Board. The data and the different outputs of your work must be on the worksheet ‘portfolio analysis’.
  2. The requirements above are a minimum. Some points will be allocated for improvements, if they make the application better. As a consequence, an application meeting only the basic requirements cannot expect the maximum grade. Original improvements will be specially rewarded.
  3. Enhancements can include but are not limited to:

x Implementation of alternative risk-adjusted performance measure (implying the creation of another UDF). For instance, Jensen’s alpha is given by the outperformance (or underperformance) of the portfolio with respect to the CAPM-implied expected return. Once a CAPM regression is run for the portfolio under analysis, the Jensen’s alpha is just represented by the estimate of the constant :

The signature of this function could be:

Jensen_alpha(asset1 As Range, asset2 As Range, proportionAsset1 As Double, risk_free As Range, benchmark As Range) As Variant

x Creative userform design;

x Users can navigate through several userforms easily, one userform per task (efficiency frontier, building the portfolios table, etc.), and only one userform is visible at the same time;

x Create a new chart from the GUI for the efficiency frontier (instead of filling a pre-created one); x Allow stock prices to be automatically imported from a text file;

x Harder: Allow users to give ticker symbol of stocks, a start date and an end date (and possibly the choice between weekly, monthly, annual data…) and then use a macro to import data from a website

(only try this if all the basics work well); x Let your creative juices flow for further enhancements… but make enhancements pertinent to the tasks at hand!

  1. The result is not all right or all wrong: some point will be allocated for the quality of the code and the quality of the user experience! Make a user-friendly application. Respect the 'best practices’ seen in class.
  2. Explain everything the users need to know to use your application, with a special focus on the improvements, in the worksheet ‘user manual’ (but not in a separate file, as it won’t be read).
  3. Make sure that your application works on a PC running Windows / Excel 2007, 2010 or 2013. Do not use ActiveX controls or other non-standard extensions, as you cannot be sure that these controls will be available on the computer used to grade your application.
  4. You can work in pairs of two for this exam. No groups of more than two are accepted. If you choose to work in pairs, only upload the exam file ONCE.
  5. Submitting your work:

x You will see 2 assignments on Blackboard – one for each teacher: use the right one, depending on the teacher you had in class!

x Upload a single Excel file containing all the work, with the names and groups of both partners in the file name. Example: “Teller-Pierre-A1_Lespagnol-Vivien-B2.xlsm”.

x You must also upload the consent form with both names and signatures indicating that you are aware of penalties for non-adherence to the Academic Honesty policy. Any pieces of work judged to be too similar will be investigated and heavily sanctioned.