The Treynor-Black model - the balance between active and passive investment (Excel) (SUB)

Hello everyone!

In today's video, I'm going to explain the Treynor-Black model, a portfolio-optimisation model that seeks to maximise a portfolio's Sharpe ratio. I will also demonstrate how to calculate it in Excel, using the data on Royal Dutch Shell and BP, the most famous UK energy companies.

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[siddhant]

Just started watching your videos and they are really helpful for students like me, more power to you

[eduardopossealvarez]

Hi Sava. Great video. One question: In this exercise you calculate the weights using metrics: alpha, beta, etc that are calculated with future information: in 2014 we don´t now the prices of 2016. would it be an improvement to calculate all those metrics with a train period data (one year back for example) and using it to apply the weights in the test period (the one in which it is supposed the price of the assets will converge to their respective fair value)?. Thank you

[eduardopossealvarez]

Hi Sava, please help me with this question: How we should proceed if the excess market return is negative: it impacts completely on the uncorrected active weight (it would result negative)?. Thanks

[edwardzhang]

Hi, hope you are well. Can I confirm what happened if the marke return is negative. How will this affect the model?