RACTICAL PART
Instructions
1. You are allowed to use only corrplot-R package. No other R packages are allowed to
use.
2. Additionally, you are free to use any R package that facilitates creating tables. For exam-
ple, you can use R package xtablefor creating tables for LaTeX and Sweave documents.
Your data
In your analysis, you are going to use the value-weighted returns on 12 Industry portfolios in
the US. The table below presents the column names in the data set and the industry definitions.
Number Column name Industry
1 NoDur Consumer Nondurables
2 Durbl Consumer Durables
3 Manuf Manufacturing
4 Enrgy Oil, Gas, and Coal Extraction and Products
5 Chems Chemicals and Allied Products
6 BusEq Business Equipment
7 Telcm Telephone and Television Transmission
8 Utils Utilities
9 Shops Wholesale, Retail, and Some Services
10 Hlth Healthcare, Medical Equipment, and Drugs
11 Money Finance
12 Other Other industries
Your tasks
Part 1: Get the data
From the data library of Kenneth French, download the value-weighted returns on 12
Industry portfolios, as well as the returns on the market portfolio and the risk-free rate
of return (the data on Fama/French 3 Factors).
The data are available for the period from July 1927 to December 2020. In your analysis,
use the period from January 1985 to December 2020.
Part 2: Risk-return analysis
1. Compute the following descriptive statistics for all industries: the mean returns, standard
deviations, and Sharpe ratios. Report these descriptive statistics in a table.
2. Compute and plot the correlation matrix using function corrplot()from R corrplot
package.
3. Make a graph where you plot the industries’ mean returns versus standard deviations.
Use points for plotting and indicate the location of each industry in the plot.
4
Answer the following questions:
a) Which industries have the highest and lowest average return?
b) Which industries have the highest and lowest standard deviation?
c) Which industries have the highest and lowest Sharpe ratios?
Note: The Sharpe ratios are computed using the historical risk-free rate of return
