Qstk Homework 3-10


In this project you will create a basic market simulator that accepts trading orders and keeps track of a portfolio's value and saves it to a file. You will also create another program that assesses the performance of that portfolio.

To Do

Part 1: Create a market simulation tool, marketsim.py that takes a command line like this:

python marketsim.py 1000000 orders.csv values.csv

Where the number represents starting cash and orders.csv is a file of orders organized like this:

  • Year
  • Month
  • Day
  • Symbol
  • BUY or SELL
  • Number of Shares

For example:

2008, 12, 3, AAPL, BUY, 130 2008, 12, 8, AAPL, SELL, 130 2008, 12, 5, IBM, BUY, 50

Your simulator should calculate the total value of the portfolio for each day using adjusted closing prices (cash plus value of equities) and print the result to the file values.csv. The contents of the values.csv file should look something like this:

2008, 12, 3, 1000000 2008, 12, 4, 1000010 2008, 12, 5, 1000250 ...

Part 2: Create a portfolio analysis tool, analyze.py, that takes a command line like this:

python analyze.py values.csv \$SPX

The tool should read in the daily values (cumulative portfolio value) from values.csv and plot them. It should use the symbol on the command line as a benchmark for comparison (in this case $SPX). Using this information, analyze.py should:

  • Plot the price history over the trading period.
  • Your program should also output:
    • Standard deviation of daily returns of the total portfolio
    • Average daily return of the total portfolio
    • Sharpe ratio (Always assume you have 252 trading days in an year. And risk free rate = 0) of the total portfolio
    • Cumulative return of the total portfolio

Orders files to run your code on

Grab this zip file to get the input files to run your code against: media:orders-files.zip

Short example to check your code

Here is a very very short example that you can use to check your code. Assuming a 1,000,000 starting cash and the orders file orders-short.csv:

The orders file:

2011,1,05,AAPL,Buy,1500, 2011,1,20,AAPL,Sell,1500,

The daily value of the portfolio (spaces added to help things line up):

2011, 1, 5, 1000000 2011, 1, 6, 999595 2011, 1, 7, 1003165 2011, 1, 10, 1012630 2011, 1, 11, 1011415 2011, 1, 12, 1015570 2011, 1, 13, 1017445 2011, 1, 14, 1021630 2011, 1, 18, 1009930 2011, 1, 19, 1007230 2011, 1, 20, 998035

For reference, here are the adjusted close values for AAPL on the relevant days:

2011-01-05 16:00:00 332.57 2011-01-06 16:00:00 332.30 2011-01-07 16:00:00 334.68 2011-01-10 16:00:00 340.99 2011-01-11 16:00:00 340.18 2011-01-12 16:00:00 342.95 2011-01-13 16:00:00 344.20 2011-01-14 16:00:00 346.99 2011-01-18 16:00:00 339.19 2011-01-19 16:00:00 337.39 2011-01-20 16:00:00 331.26

The full results:

Details of the Performance of the portfolio : Data Range : 2011-01-05 16:00:00 to 2011-01-20 16:00:00 Sharpe Ratio of Fund : -0.449182051041 Sharpe Ratio of $SPX : 0.88647463107 Total Return of Fund : 0.998035 Total Return of $SPX : 1.00289841449 Standard Deviation of Fund : 0.00573613516299 Standard Deviation of $SPX : 0.00492987789459 Average Daily Return of Fund : -0.000162308588036 Average Daily Return of $SPX : 0.000275297459588

More comprehensive examples

We provide an example, orders.csv that you can use to test your code, and compare with others. All of these runs assume a starting portfolio of 1000000 ($1M).

The final value of the portfolio using the sample file is -- 2011,12,20,1133860 Details of the Performance of the portfolio : Data Range : 2011-01-10 16:00:00 to 2011-12-20 16:00:00 Sharpe Ratio of Fund : 1.21540462111 Sharpe Ratio of $SPX : 0.0183391412227 Total Return of Fund : 1.13386 Total Return of $SPX : 0.97759401457 Standard Deviation of Fund : 0.00717514512699 Standard Deviation of $SPX : 0.0149090969828 Average Daily Return of Fund : 0.000549352749569 Average Daily Return of $SPX : 1.72238432443e-05

The other sample file is orders2.csv that you can use to test your code, and compare with others.

The final value of the portfolio using the sample file is -- 2011,12,14, 1078753 Details of the Performance of the portfolio Data Range : 2011-01-14 16:00:00 to 2011-12-14 16:00:00 Sharpe Ratio of Fund : 0.788985460132 Sharpe Ratio of $SPX : -0.177204632551 Total Return of Fund : 1.0787526 Total Return of $SPX : 0.937041848381 Standard Deviation of Fund : 0.00708034136287 Standard Deviation of $SPX : 0.0149914504972 Average Daily Return of Fund : 0.000351902965125 Average Daily Return of $SPX : -0.000167347202139

Implementation suggestions & assumptions

In terms of execution prices, you should assume you get the adjusted close price for the day of the trade.

Here are some hints on how to build it: media:marketsim-guidelines.pdf

What to expect when you turn in your assignment (Coursera)

Once you create the tools described above, you will be asked to run specific orders files through your code and then to run the results through your analyze tool to report on various measures such as Sharpe Ratio and Cumulative Return.

Deliverables for on campus GT students

To do: Run your code for the two files orders.csv and orders2.csv. Generate charts for the two runs.

To turn in:

  • The code for your two programs: marketsim.py, analyze.py
  • A report, report.pdf that includes:
    • The 2 charts for the two orders files.
    • Text output of your analysis code.
alt Example chart. $DJI (green) is the benchmark blue is the fund.


The purpose of this assignment is to

  • Introduce you to historical equity data
  • Introduce you to Python & Numpy, and
  • Give you a first look at portfolio optimization

We also hope it will get you started having opinions about equities. In this assignment you will create and optimize a portfolio for the year 2011.

Important note: This is not a realistic way to build a strong portfolio going forward. The intent is for you to learn how to assess a portfolio.

To do

Part 1: Examine QSTK_Tutorial_1. You can use that code as a template for this assignment.

Part 2: Write a Python function that can simulate and assess the performance of a 4 stock portfolio.

Inputs to the function include:

  • Start date
  • End date
  • Symbols for for equities (e.g., GOOG, AAPL, GLD, XOM)
  • Allocations to the equities at the beginning of the simulation (e.g., 0.2, 0.3, 0.4, 0.1)

The function should return:

  • Standard deviation of daily returns of the total portfolio
  • Average daily return of the total portfolio
  • Sharpe ratio (Always assume you have 252 trading days in an year. And risk free rate = 0) of the total portfolio
  • Cumulative return of the total portfolio

An example of how you might call the function in your program:

vol, daily_ret, sharpe, cum_ret = simulate(startdate, enddate, ['GOOG','AAPL','GLD','XOM'], [0.2,0.3,0.4,0.1])

Some assumptions:

  • Allocate some amount of value to each equity on the first day. You then "hold" those investments for the entire year.
  • Use adjusted close data. In QSTK, this is 'close'
  • Report statistics for the entire portfolio

Part 2.5: Make sure your simulate() function gives correct output. Check it against the examples below.

Part 3: Use your function to create a portfolio optimizer!

Create a for loop (or nested for loop) that enables you to test every "legal" set of allocations to the 4 stocks. Keep track of the "best" portfolio, and print it out at the end.

  • "Legal" set of allocations means: The allocations sum to 1.0. The allocations are in 10% increments.
    • Example legal allocations: [1.0, 0.0, 0.0, 0.0], [0.1, 0.1, 0.1, 0.7]
  • "Best" portfolio means: Highest Sharpe Ratio.

Part 4:

  • Create a chart that illustrates the value of your portfolio over the year and compares it to SPY.

Example output

Here's an example output for your program. These are actual correct examples that you can use to check your work.

Start Date: January 1, 2011 End Date: December 31, 2011 Symbols: ['AAPL', 'GLD', 'GOOG', 'XOM'] Optimal Allocations: [0.4, 0.4, 0.0, 0.2] Sharpe Ratio: 1.02828403099 Volatility (stdev of daily returns): 0.0101467067654 Average Daily Return: 0.000657261102001 Cumulative Return: 1.16487261965 Start Date: January 1, 2010 End Date: December 31, 2010 Symbols: ['AXP', 'HPQ', 'IBM', 'HNZ'] Optimal Allocations: [0.0, 0.0, 0.0, 1.0] Sharpe Ratio: 1.29889334008 Volatility (stdev of daily returns): 0.00924299255937 Average Daily Return: 0.000756285585593 Cumulative Return: 1.1960583568

Minor differences in float values may arise due to different implementations.

Note: It might be a good idea before starting the program the homework to clear the cache. You'll need to go to the Scratch directory that gets printed every time you run the program. And Delete everything from that QSScratch directory. OR an easier way to do this will be to use :

c_dataobj = da.DataAccess('Yahoo', cachestalltime=0)

Implementation suggestions & assumptions

It is useful to look at QSTK_Tutorial_1 and QSTK_Tutorial_3, but please realize that the method in Tutorial 3 assumes daily rebalancing, which we do not use here.

Here is a suggested outline for your simulation() code:

  • Read in adjusted closing prices for the 4 equities.
  • Normalize the prices according to the first day. The first row for each stock should have a value of 1.0 at this point.
  • Multiply each column by the allocation to the corresponding equity.
  • Sum each row for each day. That is your cumulative daily portfolio value.
  • Compute statistics from the total portfolio value.

Here are some notes and assumptions:

  • When we compute statistics on the portfolio value, we include the first day.
  • We assume you are using the data provided with QSTK. If you use other data your results may turn out different from ours. Yahoo's online data changes every day. We could not build a consistent "correct" answer based on "live" Yahoo data.
  • Assume 252 trading days/year.

What to expect when you turn in your assignment

First, make sure your program is working correctly by checking your output against a few of our model examples. Once you're ready, take the quiz. The quiz will give you a start and end date, as well as a set of equities to use. You should run your program with those values. The quiz will ask you about the values your program calculates.

If you felt that this assignment was "too easy" try these additional challenges. Sorry, but we don't offer extra credit:

  • Note that we requested the optimal portfolio in allocation "chunks" of 10%. This was to keep the search space down. There at most 10,000 legal portfolios (10*10*10*10). If we wanted a more precise answer, say in 1% increments, it would require you to check up to 100,000,000 portfolios, and may take to long for you to check them in a brute force manner. Challenge: Devise a way to efficiently search the space of possible portfolios so that you can find a more precise answer without having to test 100M portfolios (hint: gradient ascent).
  • Find the optimal portfolio of N equities given M equities as input. For example, what is the best portfolio of 10 stocks given all of the S&P 500?
  • Allow short positions (i.e., negative allocations).
  • Brag about your results on piazza!

Deliverables for on campus GT students

(Note that students taking the course via Coursera should complete this assignment by taking the quiz. It will ask you to optimize a different set of equities and confirm your results.)

GT students, please ensure that your program generates output as per the examples above. Your program should accept a command line like this:

python optimizer.py startyear startmonth startday endyear endmonth endday symbol1 symbol2 symbol3 symbol4

So for, example:

python optimizer.py 2010 1 1 2011 1 1 AAPL GLD GOOG XOM

Would optimize over the period from Jan 1 2010 to Jan 2 2011 using the symbols AAPL, GLD, GOOG and XOM.

Run your optimizer with the following command lines and place the output in your report:

python optimizer.py 2010 6 1 2011 6 1 AAPL GLD GOOG XOM python optimizer.py 2004 1 1 2006 1 1 MMM MO MSFT INTC

Submit the following via T-square:

  • Your report: report.pdf, including
    • The output of the two command lines above
    • Details about any of the extra credit components you attempted, include results and commentary.
  • Your code: optimizer.py
  • Additional code that supports your extra credit components.

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