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sector allocation project

The lab project yesterday consisted of -

  1. deriving an optimal mean-variance portfolio based on historical relative returns data, and
  2. augmenting the historical data to reflect a prior opinion

The historical data consists of five years of monthly relative returns on eleven sectors versus the Russell 3000 benchmark index.

The prior is to be represented by 12 months of pseudo-observations, with each sector return independent with mean 0% and standard deviation 2% per month.

For next week's lab, please write a script to produce 1,000 versions of the augmented data and the corresponding solutions for the SR (Sharpe Ratio) portfolio with unit expected objective.