Instructions: Fill in the details inside the boxes. Your numberical answers should NOT be hard-coded! That is, if I put new returns into columns B-F, your answers inside the boxes in columns I-M should change to reflect these new inputs. Do NOT rearrage the spacing or formatting on this Front Sheet. Do whatever you like on the Workspace. Futures Characteristics Avg Monthly Ret Avg Monthly StDev Monthly Sharpe Avg Ann Ret Avg Annual StDev Annnual Sharpe TS MOM Positions* Avg Monthly Ret Avg Monthly StDev Monthly Sharpe Avg Ann Ret Avg Annual StDev Annnual Sharpe Snewness Kurtosis % Long Turnover* TS MOM Portfolio Avg Monthly Ret Avg Monthly StDev Monthly Sharpe Avg Ann Ret Avg Annual StDev Annnual Sharpe Snewness Kurtosis % Long Turnover CAPM Beta* Commodity Beta** Alpha*** Alpha t-stat*** Comments: Discuss your strategy and whether you think it makes for a viable investment approach. What are the risks to investing in this strategy? Now run the same strategy (same process to compute signals, same leverage for 40% vol) on your out of sample data TS MOM Out of Sample Avg Monthly Ret Avg Monthly StDev Monthly Sharpe Avg Ann Ret Avg Annual StDev Annnual Sharpe Snewness Kurtosis % Long Turnover CAPM Beta* Commodity Beta** Alpha*** Alpha t-stat*** Comments: Discuss any differences in results between your out-of-sample results and the original portfolio results. What do you think explains these differences? Diversifying Portfolios using TSMOM: Answer the questions here on the "TSMOM Data" tab. You can do all your work on that tab and report the results here. In particular, how does adding the TSMOM portfolio into the market portfolio help improve the Sharpe ratio? How does this change between the in-sample and out-of-sample periods? How much of an allocation (what percent weight) to the TSMOM portfolio would result in an optimal Sharpe ratio portfolio for the in-sample period? What is that Sharpe ratio? How much better is it than the Sharpe ratio for the Rm-Rf portfolio? How does this same allocation impact the Sharpe ratio for the out-of-sample portfolio? How much allocation do you need in order to produce the maximum Sharpe ratio for the out-of-sample period? Why do you think there is a difference? Based on the evidence, would you add an investment in TSMOM to help diversify your personal equity portfolio? Why or why not? This (column B) is the monthly time series of data for TSMOM, generated by AQR, following the paper "Demystifying Managed Futures" This uses the strategy across a wider variety of futures than just commodities, as detailed in the paper. Column C contains the Fama-French Rm-Rf returns, which we will use as the market portfolio Answer the following questions: 1. Put the strategy you generated into column D (from 1999-2018). Compare the return, risk, and sharpe ratio to that for the TSMOM portfolio reported in column B. (For calculating SR, remember, these are all excess returns.) Perform this separately for 1999-2011 and 2012-2018. How do they compare? 2. Form a portfolio in column E that combines the TSMOM factor in column B with the market portfolio in column C. Start with a 50%/50% allocation. Refer to the value in cell H2 to calculate your portfolio. So, for example, if I change cell H2 to 10% then my portfolio in column E will change to a 90%/10% portfolio. 3. Calculate the return, standard deviation, and sharpe for the TSMOM, market portfolio, and the 50/50 combo portolio. Do this separately for the period 1985-2011 (in sample) and 2012-2021 (out of sample). In particular, how does adding the TSMOM portfolio into the market portfolio help improve the Sharpe ratio? How does this change between the in-sample and out-of-sample periods? 4. For the out-of-sample period: using this data, determine how much of an allocation to the TSMOM portfolio would have produced the maximum Sharpe ratio. You can do this using Solver to change the value in cell H2 in order to maximize the value in the cell that contains your Sharpe ratio for the OOS portfolio. 5. Based on the evidence, would you add an investment in TSMOM to help diversify your equity portfolio? Why or why not?