Exercise

Global Minimum Variance Portfolio

The global minimum variance portfolio is the portfolio that provides you with the lowest possible portfolio volatility for a number of underlying assets. To calculate the global minimum variance portfolio for our returns_df data set, you can make use of the R function globalMin.portfolio().

The globalMin.portfolio() function only needs two inputs:

  • The er argument: the expected returns of the underlying assets (that is mu_hat_annual in this case).
  • The cov.mat argument: the covariance matrix of the returns (that is cov_mat_annual in this case).

Both mu_hat_annual and cov_mat_annual were calculated in a previous exercise and are preloaded in your workspace.

Instructions

100 XP
  • Assign the global minimum variance portfolio to global_min_var_portfolio and print the result to the console.
  • Apply the summary() function to global_min_var_portfolio. Set the risk.free argument to 3% to get the portfolio Sharpe ratio.
  • Make a plot with the plot() function that shows the weight of Boeing and Microsoft in global minimum variance portfolio.