Dear all,

I am having following conceptual problem when I am trying to find out Value at Risk (VaR) for the portfolio. I am just giving an indicative portfolio.

(a) stocks (equity) of 3 different companies say e.g.

E1   500 equity shares
E2 1000 equity shares
E3   100 equity shares

I have closing prices for last 1 year (i.e. say 250 days) and thus I obtain 250 portfolio values by multiplying the respective number of equity shares by respective closing prices and add them.

Thus, I have 250 portfolio values. I obtain 249 portfolio returns using "LN". 

Problem (A) 

My problem is is my method of calculating returns correct?
In the sense, should I calculate returns for all these 3 companies separately (unlike calculating the portfolio value by adding the values of these 3 companies together) and then carry out the further analysis like calculating the correlation matrix etc.

Problem (B)

If I were to consider returns separately for the above three companies, what will happen if there are say 5000 companies (equity only) in my portfolio? How do I handle these many companies?

Problem (C) 

How do I proceed if besides having equity, I also have debt and forex transactions also. (Please note that I am asking these questions (especially Problem (C) form calculating returns point of view as say for Forex transactions, I consider the spot exchange rates and the LIBOR rates (depending on the currency and the maturity period) as risk factors and calculate the Mark to Market (MTMs) values.

So my problem basically is how do I arrive at returns in a portfolio.

I apologize if I have not put up the problem in correct and short words. Please forgive and guide me,

With regards

Amy







      
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