The Assignment

The aim of this coursework is to give you the opportunity to demonstrate your ability to apply the knowledge acquired in this module, in the context of the real market data. The focus is on creating and backtesting successful investment strategies.

You are investment strategists recently hired into an investment bank. The first task assigned to you in the job is to create new equity products (strategies) for the bank. For a new product to be successful, it has to be attractive (in terms risk and return) to the banks' existing or potential clients, who are primarily hedge funds.

Specifically, you are required to identify profitable trading strategies based on comprehensive historical analysis, using real data from Bloomberg. The aim is not only to find the most profitable strategies but also to demonstrate your analytical skills, and your ability to apply (or modify) textbook theories in practice. 

The Task

You have to prepare a fifteen minutes presentation at the end of the semester to pitch your strategies to potential clients. The presentation should cover details of the equity product, e.g. which stocks you will be trading, the mechanical of the strategy, historical performance, risk exposures, etc. The presentation should be sharp and precise as pitch to prospective clients. Use any means of presenting that you believe are appropriate for an effective presentation. It will help if you are well prepared, confident, factual and focused.The presentation counts for 10% of the final mark.

You are also required to produce a comprehensive report of no more than 8 pages. The report counts for 90% of the final mark.In your report you should focus on presenting concisely the important aspects of your work that matters to potential clients. You should clearly explain your investment strategies, if it is based on well-known strategies, you need explain in details any modification implemented and why. To test the new equity product, assuming you are given £1,000,000, and it can be based on (but not limited to) the following models:

1. Conventional equity portfolio. Stocks are picked based on fundamental analysis, subjective opinions, macroeconomic conditions, and personal preferences, etc. You need to explain in details why specific stocks are included in the portfolio. Minimum of 20 stocks in the portfolio.

2. Markowitz optimal portfolio. Funds are allocated to individual stocks based on optimisation of covariance matrix. This can be used in conjunction with model 1. Details of optimisation procedures and optimisation constraints need to be properly discussed. Minimum of 20 stocks in the portfolio.

3. Index model. Funds are allocated based on single factor index model. This also can be used with model 1. Details of implementation need to be properly discussed. Minimum of 20 stocks in the portfolio.

4. Fama-French model. Funds are allocated based on the well-known three-factor model, you need to explain in details how each factor portfolio is formed, and the factor loadings of your choice.

5. Pair-Trading model. Funds are allocated based on identifying "correlated" pairs. Details rules of identifying pairs, as well as trading rules need to be clearly explained.