Main objective is to construct a stock portfolio using stocks listed in S&P-500. To do that, you will pick 50 stocks from 5 different sectors (10 stocks from each sector). You ultimate aim is to run PCA for each sector and see which stock dominates the sector and to run performance analysis using Sharpe ratio.
1) Retrieve daily data covering the period of 01/01/2017-01/01/2022.
2) Calculate returns of your stocks
3) Run PCA for different sectors. If you end up with more than one principal component, calculate cross sectional average of these components to have only one variable.
4) Calculate the loadings to show which stock dominates the sector (loadings gives the weight of the stock in a portfolio)
5) Calculate sharpe ratio for each sector and compare it to the Sharpe ratio of S&P-500 for the same period.