Portfolio Sensitivity-1

Risk Manager should know which external factors has major impact on his portfolio. This will enable the RiskManager to take effective action in early stages.

What?
  This help RiskManager to know to which external factors portfolio has more dependency.

Why?
  When RiskManager knows important External Factors then he can take informed decisions.

How?

FROM  Historical Data get the returns and see the correlation between benchmark returns and portfolio returns.

CODE:-
DATA BENCHMARK_PRICE;
 INPUT DATE MMDDYYYY8. FTSE_MIDCAP FTSE_SMALLCAP FTSE_LARGECAP FTSE_REALESTATE PORTFOLIO_PRICE;
 DATALINES;
 01012008                    10      12                2            14             14
 01022008                    11      14                3             4             15
 01032008                    13      15                4             5             16
 RUN;

DATA BENCHMARK_RETURNS;
 SET BENCHMARK_PRICE;
 FTSE_MIDCAP_RETURN         =(FTSE_MIDCAP    -LAG1(FTSE_MIDCAP     ))/FTSE_MIDCAP ;
 FTSE_SMALLCAP_RETURN    =(FTSE_SMALLCAP  -LAG1(FTSE_SMALLCAP   ))/FTSE_SMALLCAP;
 FTSE_LARGECAP_RETURN    =(FTSE_LARGECAP  -LAG1(FTSE_LARGECAP   ))/FTSE_LARGECAP ;
 FTSE_REALESTATE_RETURN =(FTSE_REALESTATE-LAG1(FTSE_REALESTATE ))/FTSE_REALESTATE ;
 PORTFOLIO_RETURN             =(PORTFOLIO_PRICE-LAG1(PORTFOLIO_PRICE ))/PORTFOLIO_PRICE;
 RUN;

PROC PRINT DATA=BENCHMARK_RETURNS;
   VAR DATE  FTSE_MIDCAP_RETURN  FTSE_SMALLCAP_RETURN FTSE_LARGECAP_RETURN FTSE_REALESTATE_RETURN PORTFOLIO_RETURN;
RUN;

PROC CORR DATA=BENCHMARK_RETURNS;
VAR FTSE_MIDCAP_RETURN  FTSE_SMALLCAP_RETURN FTSE_LARGECAP_RETURN FTSE_REALESTATE_RETURN;
WITH PORTFOLIO_RETURN;
RUN; 

RESULT:-

Pearson Correlation Coefficients, N = 2 Prob > |r| under H0: Rho=0
	FTSE_MIDCAP_RETURN	FTSE_SMALLCAP_RETURN	FTSE_LARGECAP_RETURN	FTSE_REALESTATE_RETURN
PORTFOLIO_RETURN	-1.00000 .	1.00000 .	1.00000 .	-1.00000 .

Portfolio_Return is positively correlated with FTSE_SMALLCAP_RETURN &FTSE_LARGECAP_RETURN.

Portfolio_Return is negatively correlated with FTSE_MIDCAP_RETURN & FTSE_REALESTATE_RETURN.

Conclusion:-

When there is a positive return on FTSE_MIDCAP_RETURN, FTSE_REALESTATE_RETURN then Portfolio may have negative impact.