Module 3 Organizing, Visualizing, and Describing Data

The following information relates to Questions 1–2

The table below gives the deviations of a hypothetical portfolio’s annual total returns (gross
of fees) from its benchmark’s annual returns, for a 12-year period ending in 2003.
Portfolio’s Deviations from Benchmark Return, 1992–2003 (%)
1992 −7.14 1998 −0.89
1993 1.62 1999 −9.19
1994 2.48 2000 −5.11
1995 −2.59 2001 −0.49
1996 9.37 2002 6.84
1997 −0.55 2003 3.04

1. A. Calculate the frequency, cumulative frequency, relative frequency, and cumulative

relative frequency for the portfolio’s deviations from benchmark return, given the set of
intervals in the table that follows.

Return Frequency Cumulative Relative Cumulative

Interval Frequency Frequency (%) Relative
Frequency (%)

B. Construct a histogram using the data.

C. Identify the modal interval of the grouped data.

2. Tracking risk is the standard deviation of the deviation of a portfolio’s gross-of-fees total
returns from benchmark return. Calculate the tracking risk of the portfolio, stated in percent
(give the answer to two decimal places).
Module 3 Organizing, Visualizing, and Describing Data

The table below gives the annual total returns on the MSCI Germany Index and the annual total
returns on the JP Morgan Germany five- to seven-year government bond index (JPM 5–7 Year GBI,
for short) from 1993 to 2002. During the period given in the table, the International Monetary Fund
Germany Money Market Index (IMF Germany MMI, for short) had a mean annual total return of 4.33
percent. The returns are in the local currency.
Year MSCI Germany Index (%) JPM Germany 5–7 Year GBI (%)
1993 46.21 15.74
1994 −6.18 −3.40
1995 8.04 18.30
1996 22.87 8.35
1997 45.90 6.65
1998 20.32 12.45
1999 41.20 −2.19
2000 −9.53 7.44
2001 −17.75 5.55
2002 −43.06 10.27
Source: Ibbotson EnCorr AnalyzerTM.
For question 1-5, use the observations of the MSCI Germany Index
1. To describe the distribution, perform the following:
A. Create a frequency distribution with five equally spaced classes, including absolute
frequency, relative frequency, and cumulative relative frequency.
B. Draw a histogram of absolute frequency.
C. Draw a polygon of relative frequency.
D. Draw a polygon of cumulative relative frequency.
2. To describe the central tendency of the distribution, perform the following:
A. Calculate the sample mean return, 20% trimmed mean, and 80% winsorized mean.
B. Calculate the median return.
C. Identify the modal interval (or intervals) of the grouped returns.
D. To describe the compound rate of growth of the MSCI Germany Index, calculate the
geometric mean return.
E. Calculate the harmonic mean return.
3. To describe the locations of the distribution, perform the following:
A. To describe the values at which certain returns fall, calculate the 30th percentile.
B. Find the percentile of the mean return.
C. Draw a Box and Whisker Chart
4. To describe the dispersion of the distribution, perform the following:
A. Calculate the range.
B. Calculate the mean absolute deviation (MAD).
C. Calculate the sample variance and sample standard deviation.
D. Calculate the semivariance and semideviation semideviation using the IMF Germany MMI as
the target.
5. To describe the degree to which the distribution may depart from normality, perform the
following:
A. Calculate the skewness. Explain the finding for skewness.
B. Calculate excess kurtosis. Contrast the distribution of annual returns on the MSCI Germany
Index to a normal distribution model for returns.
For question 6-8, use both observations of MSCI Germany Index (%) and JPM Germany 5–7 Year
GBI (%). Construct a portfolio 60 percent invested in the MSCI Germany Index and 40 percent
invested in the JPM Germany GBI.
6. Calculate the mean annual return and sample standard deviation of the portfolio.
7. Contrast the risk of the portfolio, the MSCI Germany Index, and the JPM Germany 5–7 Year
GBI, as measured by the coefficient of variation.
8. Contrast the risk-adjusted performance of the portfolio, the MSCI Germany Index, and the JPM
Germany 5–7 Year GBI, as measured by the Sharpe ratio using the IMF Germany MMI as a
proxy for the risk-free return.
Module 3 Organizing, Visualizing, and Describing Data

9. Variable X takes on the values shown in the following table for five observations. The
table also shows the values for five other variables, Y1 through Y5. Which of the
variables Y1 through Y5 have a zero correlation with variable X?

X Y1 Y2 Y3 Y4 Y5
1 7 2 4 4 1
2 7 4 2 1 2
3 7 2 0 0 3
4 7 4 2 1 4
5 7 2 4 4 5

10. Use the data sample below to answer the following questions.

𝑋 = 220, (𝑋 − 𝑋) = 440, (𝑋 − 𝑋)(𝑌 − 𝑌) = −568

𝑌 = 385, (𝑌 − 𝑌) = 1120, 𝑛 = 11

A. Calculate the sample mean, variance, and standard deviation for X.

B. Calculate the sample mean, variance, and standard deviation for Y.
C. Calculate the sample covariance between X and Y.
D. Calculate the sample correlation between X and Y.

11. Statistics for three variables are given below. X is the monthly return for a large-stock
index, Y is the monthly return for a small-stock index, and Z is the monthly return for a
corporate bond index. There are 60 observations.

𝑋 = 0.760, (𝑋 − 𝑋) = 769.081, (𝑋 − 𝑋)(𝑌 − 𝑌) = 720.535

𝑌 = 1.037, (𝑌 − 𝑌) = 1243.309, (𝑋 − 𝑋)(𝑍 − 𝑍̅) = 231.007

𝑍̅ = 0.686, (𝑍 − 𝑍̅) = 183.073, (𝑌 − 𝑌)(𝑍 − 𝑍̅) = 171.816

A. Calculate the sample variance and standard deviation for X, Y, and Z.

B. Calculate the sample covariance between X and Y, X and Z, and Y and Z.
C. Calculate the sample correlation between X and Y, X and Z, and Y and Z.