WEBVTT 00:01.050 --> 00:06.780 In this video we are going to compare the three indexes that we created and the last videos and we will 00:06.780 --> 00:11.970 figure out how and why the performance of those indexes is different. 00:12.450 --> 00:13.910 And we are still important. 00:13.980 --> 00:16.050 The non data frame. 00:16.050 --> 00:20.190 So here we have our six constituents and our three indexes. 00:20.310 --> 00:23.400 And first of all let's visualize our three indexes. 00:23.400 --> 00:29.700 So we select the very last three columns here and we use the plot method as always 00:32.650 --> 00:34.420 so here we have our three indexes. 00:34.450 --> 00:41.230 And we can see here in blue our price weighted index which is actually our chosen the best performance 00:41.290 --> 00:49.040 at least in terms of return so all indexes are starting here into 14 at the base value of 100. 00:49.340 --> 00:55.580 And the price weighted index actually closes here at the end of two eighteen at the highest price. 00:55.790 --> 01:02.750 Then we effort the second highest the price here are the second highest performance shows the evaluated 01:02.750 --> 01:09.120 and next and red and the poorest performance at least in terms of return shows here in green. 01:09.140 --> 01:11.460 The Equal Weighted Index. 01:11.570 --> 01:16.470 And that's again have a look at the normalized graph for our six constituents. 01:16.520 --> 01:24.790 So we are plotting the six constituencies without the indexes and actually this is nothing new. 01:24.800 --> 01:30.410 So the best performance at least in terms of the return shows here the Amazon stock. 01:30.410 --> 01:37.850 And then on the second ring the Microsoft stock and it's actually no surprise that the price weighted 01:37.850 --> 01:42.340 index shows here the best return because on the price weighted index. 01:42.440 --> 01:45.800 The weight of the best performing constituents. 01:45.860 --> 01:48.470 So the Amazon stock is the highest. 01:48.470 --> 01:56.710 So let's have a look at the weights in the price weighted index so here we have clearly a concentrated 01:56.710 --> 02:03.280 position in the Amazon stock because the Amazon price is the highest over the whole term here. 02:03.340 --> 02:11.020 And also if we have a look at the evaluated index weights so also here we have kind of a concentrated 02:11.020 --> 02:15.360 positions in the stocks Amazon and Microsoft. 02:15.640 --> 02:21.940 And as those two stocks are the best performing stocks at least in terms of return then it's actually 02:21.940 --> 02:30.580 no surprise that also here devaluate it in next and read to performs better than the equal weighted 02:30.580 --> 02:31.780 index. 02:31.780 --> 02:34.240 And finally we have the equal weighted index. 02:34.240 --> 02:40.130 And here we have uh the lowest return or the poorest performance because then the equal weighted index 02:40.180 --> 02:45.830 we have actually the lowest rates for the best performing Amazon stock and the Microsoft stock. 02:46.300 --> 02:49.190 So here we have one divided by six. 02:49.230 --> 02:51.440 For stocks as a weight. 02:51.520 --> 02:54.610 So let's again have a look here. 02:54.650 --> 02:56.030 This is a no brainer. 02:58.480 --> 03:05.560 All right now let's go on and let's calculate the annualized return and the annualized risk for our 03:05.560 --> 03:08.590 constituents and also for the three indexes. 03:08.590 --> 03:16.360 So again here we're creating the summary data frame with the mean and standard deviation of daily returns. 03:16.360 --> 03:22.900 And we need to rename the columns to return and risk and we actually annualize return on risk. 03:22.900 --> 03:31.800 So this is nothing new here so let's have a look and it's always a graph is more intuitive than a bunch 03:31.800 --> 03:33.030 of numbers. 03:33.060 --> 03:40.030 So we are plotting here the risk return profile of our nine securities here. 03:40.080 --> 03:41.070 So let's do this 03:44.520 --> 03:50.100 and we can see here that the price weighted index shows them the highest return and also the highest 03:50.100 --> 03:56.190 risk because of the price weighted index is actually dominated by the Amazon stock which has the by 03:56.190 --> 03:59.420 far the highest risk and the highest return. 03:59.580 --> 04:05.490 Then we have fear the value weighted index which still shows here a higher risk and a higher return 04:05.490 --> 04:07.500 than the equal weighted index. 04:07.530 --> 04:12.970 And also here this is simply because of the weights of the Microsoft stock and the Amazon stock. 04:12.990 --> 04:17.010 So these stocks shows the highest the risk but also the highest return. 04:17.040 --> 04:22.320 So the rates of these two stocks are higher here in the evaluated next so than in the equal weighted 04:22.320 --> 04:23.880 index. 04:23.880 --> 04:29.870 And finally we have the equal weighted index that shows uh the lowest risk but also the lowest return. 04:29.970 --> 04:37.040 But we could say that in the equal weighted index we have the highest degree of diversification. 04:37.290 --> 04:44.790 And what you can also see here that with our indexes or with our portfolios here you can create a different 04:44.820 --> 04:47.240 and unique risk return profile. 04:47.250 --> 04:50.310 So then compared to the single stocks. 04:50.310 --> 04:55.110 So in general it's desirable to have a low risk and high return. 04:55.170 --> 05:02.820 So to be on the left upper corner here and we definitely get the impression here that with our indexes 05:03.300 --> 05:07.400 we get here more to the upper left corner. 05:07.560 --> 05:11.720 So to have a better performance in terms of risk and return. 05:12.180 --> 05:19.190 And this is a portfolio effect and we will have a much deeper look into portfolios in the next two sections. 05:19.420 --> 05:25.410 But for the time being we are not finished with this video and I hope to see you also in the next one 05:25.470 --> 05:25.800 by.