60 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITYTable 3.2 DIMs for different strategies
Stock Uniform changes Proportional changes
Alcoa In. 0.051073 0.15398633
American Express Co. 0.069683 0.12372132
AT&T Corp. 0.044879 0.1134629
Boeing Co. 0.056514 0.05225033
Caterpillar Inc. 0.061969 0.03523841
Citigroup Inc. 0.049297 −0.0453762
Coca-Cola Co. 0.014888 −0.1265676
Walt Disney Co. 0.043174 −0.0264934
E.I. DuPont de Nemours & Co. 0.040858 −0.1400711
Eastman Kodak Co. 0.029535 −0.0074914
Exxon Mobil Corp. 0.037164 0.13972337
General Electric Co. 0.0334 0.0073784
General Motors Corp. 0.046271 0.0660631
Hewlett-Packard Co. −0.03921 0.23467628
Hope Depot Inc. 0.038471 0.0291163
Honeywell International Inc. 0.091107 0.45881233
Intel Corp. 0.035303 −0.0385615
International Business Machines Corp. 0.054383 0.20823972
International Paper Co. 0.035303 −0.0466493
Johnson&Johnson 0.005725 −0.0539873
J.P. Morgan Chase & Co. 0.039949 −0.077956
McDonald’s Corp. −0.00473 0.00894133
Merck & Co. 0.026424 −0.0438889
Microsoft Corp. 0.023015 −0.0013181
3M Co. 0.035772 −0.1002449
Altria Group Inc. −0.01725 0.26155141
Procter & Gamble 0.01172 0.01668587
SBS Communications Inc. 0.027916 −0.1251667
United Technologies Corp. 0.057395 −0.076075
Total Differential −7.039 0.1720617
volatility by−0.15 while the proportional changes strategy will increase
volatility by 0.17. The observations are: (i) clearly the proportional strategy
is the worst one, since it increases volatility, leading to higher risk for the
same return level; (ii) the uniform strategy seems the one that diversifies risk
the most, but it is not optimal since it would not respect the return constraint;
(iii) the magnitude of the changes (−0.15 vs. 0.17) shows that the effect of a
proportional strategy is closer to that of a proportional strategy, and seems
consistent with the SSCC results.