Download - Security Analysis and Portfolio Management
INTRODUCTION
SECURITY ANALYSIS:
The term investment is a word of many meanings. The investment refers to
net additions to the capital stock of the community. Investment decision is a part of
our economic life. Everybody takes such decisions in different context and at
different times. The investor deploys money in specific investment channels with the
objective of better returns. The investor has various alternative investment avenues.
Savings are invested in assets depending on their risky. An intelligent investor with
skills of management can reduce the risk and maximize returns.
CONCEPT OF SECURITY ANALYSIS:
Security analysis refers to the analysis of trading securities. It analyses the
share price returns and the risk involved in the investment. Every investment
involves the risk and the expected return is related to risk. The security analysis will
help in understanding the behavior of security prices, market and decision making
for investment. If the analysis includes scrip the analysis of a market with various
securities it is known as macro picture of the behavior of the market. The entire
process of estimating return and risk of a security is known as security analysis.
This traditional investment analysis when applied to securities emphasizes the
projection of prices ad dividends are known as security analysis. It involves the
potential price of a share and future dividend stream is forecast, then discounted
back to the present value. Such value is called as ‘’intrinsic value’’. Then the
intrinsic value is compared with the securities market price, If the current market
price is lower than the intrinsic value, then purchase is recommended. Further, the
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security analysis is built around the idea that investors are concerned with two
principal properties inherent in securities, the return that can be expected from
holding a security, and risk that is achieved will be less than the return that was
expected.
Generally, the investors are interested primarily in selling a security for more than
they pay for it. The investor hopes to achieve a higher reward than simply placing
the money in a saving account. An investor who seeks reward that exceeds those
available on savings account forces the real risk. There is no return without risk. The
process of estimating return and risk for individual securities is known as ‘’security
analysis’’. Security analysis is the essence of valuation of financial instruments. The
value of financial asset depends upon their return and risk. The universal fact is that
everyone must recognize the risk component in risk situation
OBJECTIVES OF SECURITY ANALYSIS:
The following are the objectives of security analysis:
1. To estimate the risk and return related to a particular security.
2. To find out the intrinsic value of the security with a view to make a buy/sell
decision
3. To identify the under valued securities to buy or over value securities to sell.
4. To analyze the stock market trends to understand the stock market pattern
and behavior.
5. To forecast the future earning and dividends along with the price of the
securities.
6. To find out the key determinants of the intrinsic value.
7. To analyse and point out the position of economy industry and the company
with a view to select the possible company for investment.
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APPROACHES TO SECURITY ANALYSIS:
The security analysis aimed at identifying under securities to buy and over
valued securities to sell. It involves the entire process of estimating return and risk
for an individual security.
It is deeply rooted in fundamental concepts to measure the risk and return of
security. It emphasizes on the return and risk estimates rather than mere price and
dividend estimates. However, the return and risk estimates are dependent on share
prices and accompanying dividend stream.
Any forecast of security must necessarily consider the prospects of the
economy. The economic sets greatly influence the prospects of certain industries as
well as the psychological aspect of investing public.
The approaches for security analysis are broadly grouped into the following
categories.
1) Fundamental analysis
2) Technical analysis
3) Efficient market hypothesis.
1) FUNDAMENTAL ANALYSIS :
The first major analysis of securities analysis is the fundamental analysis. A
Fundamental analysis is a time honored value based approach depending. Upon a
careful assessment of the fundamental of an economy, industry and the company.
The fundamental analysis studies the general economic situation makes an
evaluation of an industry and finally does an in-depth analysis of both financial and
the non financials of the company of choice. The fundamental analysis is aimed at
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analyzing the various fundamentals or basic factors that effect the risk return of the
securities. The fundamental analysis involves the analysis of the following:
A) THE ECONOMIC ANALYSIS
B) THE INDUSTRY ANALYSIS
C) THE COMPANY ANALYSIS
A) THE ECONOMIC ANALYSIS:
In the economic analysis the investor has to analyse the economic factor to
forecast of the economy in order to identify the growth of the economy and its trend.
Further based on the economic analysis the investor will identify the industry groups
which are promising in the coming years in order to choose the best company in
such industry group. The economic analysis provides the investor to develop a
sound economic understand and be able to interpret the impact of important
economic indicators on the markets.
B) INDUSTRY ANALYSIS:
The object of the industry analysis is to assess the prospects of various
industrial groupings. The industry analysis helps to identify the industries with a
potential for future growth and to select companies from such industry to invest in
its securities. The industry analysis involves industry life cycle analysis, investment
implication, structure and characteristics of an industry.
C) THE COMPANY ANALYSIS:
Company analysis is the last leg in the economy, industry and company analysis
sequence. The company analysis is a study of variable that influence the future of a
firm both qualitatively and quantitatively. The purpose of company analysis is to
know the intrinsic value of a share of a company.
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2) THE TECHNICAL ANALYSIS :
As an approach to investment analysis, technical analysis is radically
different from fundamental analysis. The technical analysis is frequently used as a
supplement to fundamental analysis is, concerned with a critical study of the daily or
weekly price volume data of index comprising several shares. The technical analysis
analyses the buying and selling pressure, which govern the price trend. It helps the
investors to buy cheap and sell high, regardless of the type of company the investor
choose. The technical analysis complies a study of the market itself and not of the
various external factors which effect the market. According to technical analyst, all
relevant factors get gets reflected in the volume of the stock exchange transaction
and the level of the share prices
3) EFFICIENT MARKET HYPOTHSIS:
The efficient market hypothesis is also called as “RANDOM WALK
THEORY”. It is the extension of fundamental and technical analysis to equity
investment decisions. Efficient market theory says that no investors can out perform
the market for the simple reason that there are numerous knowledgeable analysts
and investors who would not allow the market price to deviate from the intrinsic
value due to their active buying and selling. Therefore the current market price
incorporates all fundamental information. According to “WILLIAM SHARPE” A
perfectly efficient market is one in which every security price equalizes market
value at all times. EUGEN FAMA expressed that “An efficient capital market is a
market that is efficient in processing in information. The prices of securities
observed at any time are based on “correct evaluation” of all information available
at that time. In an efficient market, prices fully reflect all available information.
The efficient market theory has the following three forms of efficiency:
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1. Weak form of efficiency:
2. Prices reflect in all information found in the record of past prices and
volumes.
3. Semi-strong- form of efficiency:
4. Prices reflect not only all information found in the records of past and
volumes but also other publicity available information.
5. Strong form of efficiency:
6. Prices reflect all available information, public as well as private.
CONCEPT OF PORTFOLIO MANAGEMENT:
Portfolio is the collection of financial or real assets such as equity
shares, debentures, bonds, treasury, bills and property etc. in a more general sense
the term portfolio may be used synonymous with the expression “collection of
assets” which can even include physical assets (gold, silver, real estate, etc).
Portfolio means a collection of combination of financial assets (securities) such as
shares, debentures, government securities. Portfolios are a combination of assets.
Portfolio will consist of collection of securities. What is to be borne in mind is that,
in portfolio context, assets are held for investment purposes and not for consumption
purposes. These holding are the result of individual preferences and decisions of the
holders regarding risk and return an a host of other considerations.
Portfolio is the investment of funds in different securities in which the total
risk of the portfolio is minimized while expecting maximum return from it. Portfolio
management takes the ingredients of risk and returns for individual securities and
considers the mixing of these securities. The portfolio management in total includes
the planning, super vision, forming rationalism and conservatism involved in the
collection of securities to meet investor’s objectives. In entails choosing the one best
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portfolio to suit the risk-return preferences of the investors. It also encompasses the
evaluation and revising the portfolio in view of changing risk, return and investors
risk preferences
STATEMENT OF THE PROBLEM
It is a service activity which is associated with providing quantitative
information primarily financial in nature and that which may needed for making
economic decisions regarding reasoned choice among different alternative course of
action. Financial management is a process of identifying management, accumulation
analysis, preparation, interpretation and communication of financial information to
plan evaluate and control. Financial management is that specialized function of
general management which is related to the procurement of finance and its effective
utilization for the achievement of the common goal of the organization.
Security Analysis refers to the analysis of trading securities. It analysis
the share price returns and the risk involved in the statement. The security analysis
aimed at identifying under valued securities to buy and over valued securities to sell.
With the reasonable review of the literature a thorough work in studying
the effective functioning of the Security analysis and Portfolio management in Inter-
connected Stock Exchange, is felt a necessary in the explained circumstances, it is
chosen for the studying in Inter-connected Stock Exchange, Hyderabad.
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NEED FOR THE STUDY :
The investor today is looking at investing in securities, which would
give him better returns that an ordinary savings bank account or fixed deposits
though at a certain amount of risk. Every person save money by post poning
consumption because future is uncertain. So, they have to search out for efficient
opportunities. Due to fast changing development in economic and industries
scenario improving the performance of the organization is essential. As a result
undertaking an academic study on Security Analysis and Portfolio Management will
be a welcome step. This study will be defiantly help full in achieving the
organization effectiveness.
OBJECTIVES:
1) To study the investment pattern and it’s related risks and returns.
2) To understand, analyze and select the best Portfolio.
3) To find out the intrinsic value of security with a view to make a buy/ sell
decision.
HYPOTHESIS:
1) Effective Security Analysis and Portfolio Management have a bearing on
company.
2) Effective Security Analysis and Portfolio Management contribute to increase
the efficiency of the company.
SCOPE:
Even though there are number of techniques for Portfolio analysis,
Markowitz Model has been choosing for the analysis. The scope of study has
been restricted to Hyderabad Stock Exchange. SEBI role and guidelines has been
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covered study, at large Indian stock market tendencies also has been considered
in the study.
METHODOLOGY
In attempting to pursue this research study topic qualitative as well as
quantitative approaches are undertaken.
Sources of Information:-
Both primary and secondary data were gathered and utilized for the study of
Security Analysis and Portfolio Management.
The statements cover the aspects of Security Analysis and Portfolio
Management the and associated issues. Personal interviews are taken with
respondents to strengthen the information.
Data collection tools, to obtain the data for the purpose of present study the
following tools used;
a) The data has been collected through HSE staff, the project guide and stock
brokers.
b) The data has been collected through journals, news papers and internet.
Data analysis are analyzed using basic parametric techniques such as percentages
and averages etc, where ever they are required.
LIMITATIONS OF THE STUDY:
1) Limited access to company information.
2) Detailed study of the topic was not possible due to limited size of the project.
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REVIEW OF LITERATURE
The securities available to an investor for investment are numerous and of
various types. The shares of over 7000 companies are listed in the stock exchanges
of the country. Traditionally, the securities were classified into ownership securities
such as equity shares and preference shares and creditorship security such as
debentures and Bonbs.Recently a number of new securities with innovative features
are being issued by companies to raise funds for their projects.
Securities analysis is the initial phase of the portfolio management process.
This step consists of examining the risk-return characteristics of individual
securities. A basic strategy in securities investment is to buy under priced securities
and sell over priced securities.
There are two alternative approaches to security analysis, namely,
fundamental analysis and technical analysis. They are based on different premises
and follow different techniques fundamental analysis, the order of the two
approaches, concentrates on the fundamental factors affecting the company such as
the EPS of the company the dividend pay-out ratio, the competition faced by the
company, the market share, quality of management,etc
According to this approach, the share price of a company is determined by
these fundamental factors. The fundamental analyst works out the true worth or
intrinsic value of a security based on its fundamentals: if the current market price is
higher than the intrinsic value, the share is set to be over priced and vice versa.
Fundamental analysis helps to identify fundamentally strong companies
whose share are worthy to be included in the investor’s portfolio.
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The alternative approach to security analysis is Technical analysis. The
technical analyst believes that share price movements are systematic and exhibit
certain consistent patterns. He there fore studies past movements in the prices of
shares to identify trends and patterns. He then tries to predict the future piece
movements. Technical analysis is an approach which concentrates on price
movements and ignores the fundamentals of the shares.
A more recent approach to security analysis is the efficient market
hypothesis according to the school of thought; the financial market is efficient in
pricing securities. The efficient market hypothesis holds the market prices
instantaneously and fully reflect all relevant available information. It means that the
market prices of securities will always equal its intrinsic value.
Efficient market hypothesis is a direct repudiation of both fundamental
analysis and technical analysis. An investor cannot consistently earn abnormal
returns by undertaking fundamental analysis or technical analysis. According to
efficient market hypothesis it is possible for an investor to earn normal returns by
normally choosing securities of a given risk level.
In literature Beinhocker say that evaluation provide a powerful and effective
recipe for salving problems and creating strategies in an predictable environment.
Fitness landscapes demonstrates how evolutionary search creates robustness and
adaptability through constant experimentation, parallel search , and mix of adaptive
walks and long jumps .by creating and cultivating evolving portfolios of strategies,
managers can make it more likely that there company will stay out of the strategy
wilderness and enjoy the high fitness peaks.
In view of Korczak adopts a different approach in the portfolio optimization
problem. He identified problems trading rules in stock market using genetic
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algorithms. Technical analysis assumes that future trends can be identified as a
more or less complicated function of past prices. Using a trade rule is a practical
way of identifying trends, which, in terms generate buying, and selling signals. on
the basis of past prices, each rule generates a signal: to sell, to hold, or to buy. To
ensure simplicity in the computing these decision.
In literature of Vieire, he is present a method for finding the optimal portfolio using
genetic algorithm matching the parameters defined by the analyst and the desired
beta of the portfolio. The analysis done by using functions that provides the most
important information on the financial health of a company. In this work, the
parameter used for the analysis is the following indices: current ration, quick ratio
and market value/ patrimony value. Binary codification is used to represent the
portfolio. The representation not only includes the share held in the portfolio, but
also it is proportion. The implementation was run for more than 4000 generations
and the fitness the value reached very close to the maximum.
In view of M.Sitaram Venugopal, S.Subramanian and U.S.Rao the
dynamic portfolio consisting of both debt and equity that has been selected for each
month for out performed the Sensex throughout the testing period. In addition, it
also dynamically switches from debt to equity during bull phase and vice versa in
bear phase automatically. thus the model is able to identify the portfolio of equity
and debt securities mix dynamically without human intervention and obtain
consistently good results in both phases. It could used by investors-both individual
and institutional for decision making.
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PROFILE OF INTER-CONNECTED STOCK EXCHANGE
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INTRODUCTION
Inter-connected stock exchange of India limited [ISE] has been promoted by 14 Regional
stock exchanges to provide cost-effective trading linkage/connectivity to all the members
of the participating Exchanges, with the objective of widening the market for the securities
listed on these Exchanges. ISE aims to address the needs of small companies and retail
investors with the guiding principle of optimizing the existing infrastructure and
harnessing the potential of regional markets, so as to transform these into a liquid and
vibrant market through the use of state-of-the-art technology and networking.
The participating Exchanges of ISE in all about 4500 stock brokers, out of
which more than 200 have been currently registered as traders on ISE. In order to leverage
its infrastructure and to expand its nationwide reach, ISE has also appointed around 450
Dealers across 70 cities other than the participating Exchange centers. These dealers are
administratively supported through the regional offices of ISE at Delhi [north], kolkata
[east], Coimbatore, Hyderabad [south] and Nagpur [central], besides Mumbai.
ISE has also floated a wholly-owned subsidiary, ISE securities and services
limited [ISS], which has taken up corporate membership of the National Stock Exchange
of India Ltd. [NSE] in both the Capital Market and Futures and Options segments and The
Stock Exchange, Mumbai In the Equities segment, so that the traders and dealers of ISE
can access other markets in addition to the ISE markets and their local market. ISE thus
provides the investors in smaller cities a one-stop solution for cost-effective and efficient
trading and settlement in securities.
With the objective of broad basing the range of its services, ISE has started
offering the full suite of DP facilities to its Traders, Dealers and their clients.
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OBJECTIVES:
1. Create a single integrated national level solution with access to multiple markets
for providing high cost-effective service to millions of investors across the country.
2. Create a liquid and vibrant national level market for all listed companies in general
and small capital companies in particular.
3. Optimally utilize the existing infrastructure and other resources of participating
Stock Exchanges, which are under-utilized now.
4. Provide a level playing field to small Traders and Dealers by offering an
opportunity to participate in a national markets having investment-oriented
business.
5. Reduce transaction cost.
6. Provide clearing and settlement facilities to the Traders and Dealers across the
Country at their doorstep in a decentralized mode.
7. Spread demat trading across the country
METHODOLOGY OF THE STUDY
OBJECTIVES OF THE STUDY:
The objectives of the study are as follows:
To know the on-line screen based trading system adopted by ISE and about its
communication facilities for the appropriate configuration to set network. This
would link the ISE to individual brokers/members.
To study about the back up measures with respect to primary communication
facilities, in order to achieve network availability and connectivity back-up
options.
Study about Clearing & Settlements in the stock exchanges for easy transfer and
error prone system. Also study about computerization demand process.
To know about the settlement procedure involved in ISE and also NSDL
operations.
Clearing defining each and every term of the stock exchange trading procedures.
SCOPE OF STUDY:
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The scope of the project is to study and know about Online Trading and
Clearing & Settlements dealt in Inter-Connected Stock Exchange.
By studying the Online Trading and Clearing & Settlements, a clear option of
dealing in stock exchange is been Understood. Unlike olden days the concept of trading
manually is been replaced for fast interaction of shares of shareholder. By this we can
access anywhere and know the present dealings in shares.
DATA COLLECTION METHODS
The data collection methods include both the primary and secondary collection methods.
Primary collection methods : This method includes the data collection from the
personal discussion with the authorized clerks and members of the exchange.
Secondary collection methods: The secondary collection methods includes the
lectures of the superintend of the department of market operations and so on., also
the data collected from the news, magazines of the ISE and different books issues
of this study
LIMITATIONS OF THE STUDY
The study confines to the past 2-3 years and present system of the trading procedure in the
ISE and the study is confined to the coverage of all the related issues in brief. The data is
collected from the primary and secondary sources and thus is subject to slight variation
than what the study includes in reality.
Hence accuracy and correctness can be measured only to the extend of what the sample
group has furnished.
SAILENT FEATURES
Network of intermediaries:
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As at the beginning of the financial year 2003-04, 548 intermediaries (207
Traders and 341 Dealers) are registered on ISE. A broad of members forms the bedrock
for any Exchange, and in this respect, ISE has a large pool of registered intermediaries
who can be tapped for any new line of business.
Robust Operational Systems:
The trading, settlement and funds transfer operations of ISE and ISS are
completely automated and state-of-the-art systems have been deployed. The
communication network of ISE, which has connectivity with over 400 trading members
and is spread across46 cities, is also used for supporting the operations of ISS. The trading
software and settlement software, as well as the electronic funds transfer arrangement
established with HDFC Bank and ICICI Bank, gives ISE and ISS the required operational
efficiency and flexibility to not only handle the secondary market functions effectively,
but also by leveraging them for new ventures.
Skilled and experienced manpower:
ISE and ISS have experienced and professional staff, who have wide
experience in Stock Exchanges/ capital market institutions, with in some cases, the
experience going up to nearly twenty years in this industry. The staff has the skill-set
required to perform a wide range of functions, depending upon the requirements from time
to time.
Aggressive pricing policy
The philosophy of ISE is to have an aggressive pricing policy for the various
products and services offered by it. The aim is to penetrate the retail market and strengthen
the position, so that a wide variety of products and services having appeal for the retail
market can be offered using a common distribution channel. The aggressive pricing policy
also ensures that the intermediaries have sufficient financial incentives for offering these
products and services to the end-clients.
Trading, Risk Management and Settlement Software Systems:
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The ORBIT (Online Regional Bourses Inter-connected Trading) and AXIS
(Automated Exchange Integrated Settlement) software developed on the Microsoft NT
platform, with consultancy assistance from Microsoft, are the most contemporary of the
trading and settlement software introduced in the country. The applications have been built
on a technology platform, which offers low cost of ownership, facilitates simple
maintenance and supports easy up gradation and enhancement. The soft wares are so
designed that the transaction processing capacity depends on the hardware used; capacity
can be added by just adding inexpensive hardware, without any additional software work.
Vibrant Subsidiary Operations:
ISS, the wholly owned subsidiary of ISE, is one of the biggest Exchange
subsidiaries in the country. On any given day, more than 250 registered intermediaries of
ISS traded from 46 cities across the length and breadth of the country.
1. Prof. P. V. Narasimham Public Interest Director
2. Shri V. Shankar Managing Director
3. Dr. S. D. Israni Public Interest Director
4. Dr. M. Y. Khan Public Interest Director
5. Mr. P. J. Mathew Shareholder Director
6. M. C. Rodrigues Shareholder Director
7. Mr. M. K. Ananda Kumar Shareholder Director
8. Mr. T.N.T Nayar Shareholder Director
9. Mr. K. D. Gupta Shareholder Director
10. Mr. V. R. Bhaskar Reddy Shareholder Director
11. Mr. Jambu Kumar Jain Trading Member Director
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LIMITATIONS OF THE STUDY:
This study has been conducted purely to understand Portfolio Management for investors.
Construction of Portfolio is restricted to two companies based on Markowitz model.
Very few and randomly selected scripts / companies are analysed from BSE listings.
Data collection was strictly confined to secondary source. No primary data is associated with the project.
Detailed study of the topic was not possible due to limited size of the project.
There was a constraint with regard to time allocation for the research study i.e. for a period of two months.
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PORTFOLIO MANAGEMENT PROCESS
Portfolio management is a complex activity which may be broken down into
following steps;
1) Specification of investment objectives and constraints;
The typical objectives sought by investors are current income,
capital appreciation, and safety of principal. The relative importance of these
objectives should be specified. Further, the constraints arising from liquidity, tome
horizon, tax, and special circumstances must be identified.
2) choice of asset mix:
The most important decision in portfolio management is the
asset mix Decision. Very broadly, this is concerned with the proportions of ‘stocks’
(equity shares and units / shares of equity // oriented mutual funds) and ‘bonds’
(fixed income investment vechiles in general) in the portfolio. The appropriate
‘stock bond’ mix depends mainly on the risk tolerance and investment tolerance
horizon of the investor.
3) Formulation of portfolio strategy:
Once a certain asset mix is chosen, an appropriate portfolio
strategy has to be hammered out. Two broad choices are available: an active
portfolio strategy or a passive portfolio strategy. An active portfolio strategy strives
to earn superior risk-adjusted returns by resorting to market timing, or sector
rotation, or security selection, or some combination of these. A passive portfolio
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strategy, on the other hand involves holding a broadly diversified portfolio and
maintaining a pre-determined level of risk exposure.
4) Selection of securities
Generally, investors pursue an active stance with respect to
security selection. For stock selection, investors commonly go by fundamental
analysis and / or technical analysis. The factors that are considered in selecting
bonds (or fixed income instruments) are yield to maturity, credit rating, term to
maturity, tax shelter, and liquidity.
5) Portfolio execution:
This is the phase of portfolio management which is concerned with
implementing the portfolio plan by buying and/ or selling specified securities in
given amounts. Though often glossed over in portfolio management discussions, this
is an important practices step that has a bearing on investment results.
6) Portfolio revision:
The value of a portfolio as well as its composition the relative proportions of stock
and bond components may change as stocks and bonds fluctuate. Of course the
fluctutations of stocks is often the dominant factor underlying this change. In
response to such changes, periodic rebalancing of the portfolio is required. This
primarily involves a shift from stocks to bonds or vice versa. In addition, it may call
for sector rotation as well as security switches.
7) Performance evaluation:
The performance of a portfolio should be evaluated periodically. The key
dimensions of portfolio performance return are commensurate with its risk exposure.
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Such a review may provide useful feedback to improve the quality of the portfolio
management process on a continuing basis.
Sources of investment risk:
As an investor you are exposed to may variety of risks. Among these there are three
major ones: business risk, interest rate risk. While a detailed discussion of these is
woven in the entire book, at this juncture a brief idea may be given.
1) Business risk:
As a holder of corporate securities (equity shares or debentures), you are
exposed to the risk of poor business performance. This may be caused by a variety
of factors like heightened competition, emergence of new technologies,
development of substitute products, shifts in consumer preferences. Inadequate
supply of essential inputs, changes in government policies, and so on. Often, of
course, the principal factor may be inept and in component management. The poor
business performance definitely affects the interest of share holders, who have a
residual claim on the income and wealth of the firm. It can also affect the interest of
debenture holders if the ability of the firm to meet its interest and principal interest
payment obligation is impaired. In such a case, debenture holders face the prospect
of default risk.
2) Interest rate risk:
The changes in interest have a bearing on the welfare of the investors. As the
interest rate goes up., the market price of existing fixed income securities falls, and
vice versa. This happens because the buyer of a fixed income security would not buy
it at its par value of share value if its fixed interest rate ids lower than the prevailing
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rate interest rate on a similar security. For example, a debenture that has a face value
of Rs 100anda fixed rate of 12% will sell at discount if the interest rate moves up,
say, 12% to 14%. While changes in interest rate will have a direct bearing on the
prices of fixed income securities, they affect equity prices too, albeit some what
indirectly. The changes in the relative yields of debentures and equity shares
influence equity prices.
3) Market risk:
Even if the power of the corporate sector and the interest rate structure remain
more or less unchanged, prices of securities, equity shares in particular, tend to
fluctuates. While there can be several reasons for fluctuation, the main cause appears
to be the changing psychology of the investors. There are periods when investors
become bullish and their investments horizons lengthen. Investor optimism, which
may border on euphoria, during such periods drives share prices to great heights.
The buoyancy created in the wake of this development is pervasive, affecting all
most ass the shares. On the others hand, when a wave of pessimism (which often is
an exaggerated response to some unfavorable political or economic development)
sweeps the market, investors turn bearish and myopic prices of all most all equity
shares register as decline as fear and uncertainly pervade the market. The market
tends to move in cycles. As john says: “you need to get deeply in to your bones the
sense that any market, and certainly the stock market, moves in cycles, so that you
will infallibly wonderful bargains every few years, and have a chance to sell again at
ridiculously high prices a few years later.”
The cycles are caused by mass psychology. As john train explains:
“the ebb and flow of mass emotion quite regular: panic is followed by relief, and
relief by optimism; then comes enthusiasm, then euphoria and rapture, then the
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bubble bursts, and public feeling slides off again into concern, desperation ,and
finally a new panic.” One would expect large participation of institutions to dampen
the price fluctuations in the market. After all institutional investors have core
professional expertise to de fundamental analysis and greater financial resources to
act on fundamental analysis. However nothing of this kind has happened. On the
contrary, price fluctuation seen to have become wider after the arrival of the
institutional investors in larger numbers. Why? Perhaps the institutions and their
analysis have not displayed more presence and rationality than the general investing
public and have succumbed in equal measure to the temptation to the speculation.
As john Maynard Kenyes has argued, factors that contribute to the volatility of the
market are not likely to diminish when expert professionals possessing best
judgement and knowledge compete in the market place. Why? According to Kenyes,
even these people are concerned with speculation (the activity of forecasting the
psychology of the market) and not the enterprise (the activity of forecasting the
prospective yield of assets over their whole life).
PORTFOLIO THEORY THE BUSINESS OF DIVERSIFICATION:
Very broadly speaking the investment process consists of two types. The first task is
security analysis which focuses on assessing the risk and risk returns characteristic
of the available investment vehicles. The second task is portfolio selection, which
involves portfolio selection, which involves choosing the best portfolio from the set
of feasible portfolios.
We begin our discussion with the second task with the help of portfolio theory.
Portfolio theory, originally proposed by ‘’HARRY MARKOEITZ’’ in the 1950s,
was the first formal attempt to quantify the risk of aportfolio and develop a
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methodology for determining the optimal portfolio. Prior to the development of
portfolio theory, investors dealt with the concepts of return and risk somewhat
loosely. Intuitively smart investors knew the benefit of diversification which is
reflected in the traditional adage: ‘’do not put all your eggs in one basket. ‘’HARRY
MARKOWITY’’ was the first person to show quantitively why and how
diversification reduces risk. In recongnition of his seminal contribution in the field
was awarded the Nobel prize in Economic in 1990.
PORTFOLIO RETURNS:
Measuring actual portfolio return
The actual (or realized) return of a portfolio of assets over some specific time period
is calculated as follows:
Rp = W1R1+W2R2+.......Wn Rn
Where Rp = rate on return on portfolio
Ri = rate on return of assest I (I = 1,….n)
Wi = weight of assest i in the portfolio ( I =1,….n)
N = number of assests in the portfolio
Equation can be expressed succinctly as follows:
Rp = ∑ Wi Ri
Equation (2) says that return on a portfolio of assests is equal to the weighted
average of the returns on various assests on the portfolio.
25
n
i = 1
For example consider a portfolio consisting of five assests:
ASSET MARKET VALUE RATE OF RETURN
1 RS 4million 15%
2 RS 6million 12%
3 RS 8million -6%
4 RS 10million 9%
5 RS 12million 10%
40million
The weight of various assets are:
W1 = 4/40 =0.10 , W2 = 6/40 =0.15,
W3 = 8/40 = 0.20 ,W4 =10/40 =0.25 ,and
W5 = 12/40 =o.30
The portfolio return is:
R = 0.10 ( 15%) + 0.15 ( 12%) +0.20 (-6%) =0.25 (9%) =0.30(10%)
R = 7.35%
THE EXPECTED RETURN ON A PORTFOLIO OF RISKY ASSETS
In portfolio analysis we often want to know the expected ( or anticipated) return
on a portfolio of risky assets. The expected return on portfolio is:
E(Rp) = W1E( R1) + W2 E (R2) + ……….. +WnE (Rn)
Where E(Rp) = Expected return on portfolio
Wi = weigh of assest I in the portfolio (I =1,….n)
E(Ri) = expected return on asset I ( i= 1,….n)
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PORTFOLIO RISK:
.
Risk of a two asset portfolio:
Recall that the variance of an individual asset ‘s risk is defined as :
Var( Ri ) = ∑ [ R is – E( Ri)]2 Ps
The variance of the return on a portfolio consisting of two assets is slightly more
difficult to calculate. It depends not only on the variance of the returns of the two
assests but also on the covariance of the returns of the two assests
Var(Rp) = w12 var(R1) + w22 Var(R2) + 2W1W2 Cov (R1R2)
Where Var (Rp) = Variance of the Port polio return,
W1W2 = Weights of assets 1 & 2 in the Port polio,
var(R1),Var(R2) = Variance of the returns on assets 1 and 2,
Cov (R1, R2)= Covariance of the returns on the assets 1 and 2,
In the words the above equation says that the variance of the return on a 2-
asset portfolio is the sum of the weighted variances of the two assets plus the
weighted covariance between the two assets.
Covariance:
The covariance term in the above equation term reflects the degree to which
the returns of the two assets vary or change together. A positive covariance means
that the returns of the two assets move in the same direction where as a negative
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S = 1
n
covariance implies that the returns of the two assets move on the opposite direction.
The covariance between any two assets I and j is calculated as follows.
Cov (Ri, Rj) = P1 [Ri1 – E (Ri)] [R – E(R j)]
+ P2 [Ri2 – E (Ri)] [R – E(R j)]
+ …….
+ Pn [Rin – E (Ri)] [R – E(R j)].
Where P1, P2, P3,… Pn = Probabilities associated with states 1,…n,
Ri1, Ri2 … Rin = Return on asset I in state 1,…n,
R j1, R j2 … R jn = Return on assets J in states 1…n
E (Ri), E (Rj) = Expected returns on assets I and J,
Example: the returns on assets 1 and 2 under the five possible states nature
are given below
State of Nature Probability Return on asset 1 Return on assets 2
1 0.10 -10 5
2 0.30 15 12
3 0.30 18 19
4 0.20 22 15
5 0.10 27 12
The expected return on asset 1 is:
E(R1) = 0.10 (-10%) + 0.30 (18%) + 0.20 (22%) + 0.10( 27%) = 16%
The expected return on assets 2 is:
E(R2) = 0.10 (15%) + 0.30 ( 12%) + 0.30 (19%) + 0.20 (15%) + 0.10 (12%) = 14%
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The covariance between the returns on assets 1 and 2 calculated below:
State of
NatureProbability
Return on
asset 1
Deviation of
the return on
asset 1 from
its mean
Return on
asset 2
Deviation of
the return on
asset 2 from
its mean
Product of the
deviations
times
probability
1 2 3 4 5 6 (2)(4)(6)
1
2
3
4
5
0.10
0.30
0.30
0.20
0.10
-10%
15%
18%
22%
27%
-26%
-1%
2%
6%
11%
5%
12%
19%
15%
12%
-9%
-2%
5%
1%
-2%
23.4
0.6
3.0
1.2
-2.2
sum=26.0
Thus the covariance between the returns on the two assets is 26.0
Relation between covariance and correlation:
Covariance correlation are conceptually analogous in the sense that both of them
reflect the degree of comovement between two variables. Mathematically , they are
related as follows:
Cov (Ri, Rj)
Where cor(Ri, Ri) =correlation coefficient between the returns on assets I and j
Cov (Ri,Rj) = covariance between the returns on assets I and j
σ (Ri), σ (Rj) = standard deviation of the returns
Thus the correlation coefficient can vary between -1.0 and +1.10. A value of -1.0
mean perfect negative correlation or perfect comovement in the opposite direction; a
value of 0 means no correlations of comovement whatsoever; a value of -1.0 means
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σ(Ri) σ (Rj)
perfect correlation or perfect comovement in the same direction. The exhibit
portrays graphically various types of correlation relationships.
30
31
32
33
Notice that in the table there are n variance terms (the diagonal terms) and n(n-1)
covariance terms (the non-diagonal terms). If n is just two, there are two variance
terms. However , as n increases, the number of covariance terms is much larger than
the number of variance terms. For example, when n is 10, there are 10 (that is
n)variance terms. Hence the variance of a well-diversified portfolio is largely
determined by the covariance terms. If covariance terms are likely to be negative, it
may be possible to grid of risk almost wholly by restoring to diversification.
Unfortunately, securities prices tend to move together. This means that most
covariance terms are positive. Hence, irrespective of how widely diversified a
portfolio is, its risk does not fall below a certain level.
Dominance of covariance:
As the number of securities included in a portfolio increases, the important of risk of
each individual security decreases where as the significance of the covariance
relation ship increases, to understand this, let us look at the equation for the variance
of the portfolio return:
Var(Rp) = ∑ Wi2 var(Ri) +∑ ∑ Wi Wj cov(RiRj)
(i≠j)
If a valve diversification strategy is followed w = 1/n under such a strategy
Var(Rp) = 1/n ∑ 1/n var(Ri) +∑ ∑ 1/n2 cov(Ri Rj)
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i = 1
n
i = 1
n
j = 1
n
i = 1
n n n
i = 1 j = 1
The range variation term and the average covariance term may be expressed as
follows:
Var = 1/n ∑ var(Ri)
Cov = 1/n(n-1) ∑ ∑ Cov (Ri, Rj)
Hence
Var (R) = 1/n Var + n-1/n cov
As n increases, the first term tends to become zero and the second term looms large.
Put differently, the importance of the variance term diminishes where as the
importance of the covariance term increases.
Optimal portfolio:
Before we discuss the procedure prescribed by Markowiz for selecting the optimal
portfolio, let us review the key assumptions made by markowitz about asset
selection behaviour.
Investors decisions are based on only two parameters, viz . the expected
return and variance.
Investors are risk averse. This means that investors when investors are faced
with two investments with the same expected return but with different risks,
they will prefer the one with the lower risk.
Investors seek to achieve the higest expected return at a given level of risk.
Investors have identical expectations about expected return, variances, and
covariances for all risky assets.
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i = 1
n
i = 1 j = 1
n n
Investors have a common one-period investment horizon.
The procedure developed by markowitz for choosing the optimal portfolio of
risky assets consists of three steps:
1) delineate the set of efficient portfolio.
2) specify the risk – return indifference curves.
3) choose the optimal portfolio.
Efficient portfolios:
Suppose an investor is evaluating two stocks A and B for investment stock A has an
expected return of 15 percent and a standard deviation of 10 percent.
Stock B has an expected return of 20 percent and a standard of 25 percent. The
coefficient of correlation in the returns of A and B is 0.4
He can combine stocks A and B in a portfolio in a number of ways by simply
changing the proportions of his funds allocates to them. Some of the options
available to him are shown below.
Port polioProportion ofA
WA
Proportion of
BWB
Expectedreturn
E(Rp) %
StandardDeviation
σp %
1 1.00 0.00 15 10
2 0.75 0.25 16.25 11.25
3 0.50 0.50 17.50 15.21
4 0.25 0.75 18.75 19.88
5 0.00 1.00 20.00 25.00
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The five options described above are plotted graphically as shown. If just two stocks
offer the investor with so many options, imagine the range of possibilities open to
him when he invests in a number of different securities. Exhibits shows the
innumerable portfolio options available to the investor. The collection of all possible
portfolio options represented by the broken – egg shaped region is referred to as the
feasible region.
Expected Returns, E(Rp)
Risk, σp
20%
15%
10%
05%
20%
15%
10%
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The investor need not, however feel unduly overwhelmed by the belwildering range
of possibilities shown in the exhibit because what really matters to him is the north
west of the feasible range defined by the thick darkline. Referred to as the efficient
frontier, this boundary contains all the efficient portfolio options available to him.
It may be useful to clarify here what exactly a portfolio is. A portfolio is efficient if
(and only if) there is no alternative with
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i. the same E(Rp) and a lower σ p , or
ii. the same σ p and a higher E(Rp), or
iii. a higher E(Rp) and a lower σ p.
Thus in exhibit while all the available portfolio are contained in the region
AFXMNO, only the portfolio which lie along the boundary AFX are efficient. AFX
represents the efficient frontier. All the other portfolios are inefficient. A portfolio
like z is inefficient because portfolio like B and D, among others, dominate it. The
efficient frontier is the same for all the investors because portfolio theory is based on
the assumption that investors have homogenous expectations
We have merely defined what is meant by set of efficient portfolios. How
can this actually obtained from the innumerable from the innumerable portfolio
possibilities that lie before the investors ? the set of efficient portfolios may be
determined with the help of graphical analysis, or calculus analysis, or quadratics
programming analysis, the major advantage of graphical analysis is that it is easier
to grasp. Its advantage is hat it cannot handle
Portfolios containing more than three securities. Mathematical analysis can grapple
with the n- dimensional space. However, the calculus method is not capable of
handling constraints in the form of inequalities Quadratic programming analysis is
the most versatile of all the three approaches. It can handle any number of securities
and cope with inequalities as well. For all practical, the quadratic programming
approach is the most useful approach.
Expected
Return, E(Rp)
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RISK RETURN INDIFFERENCE CURVES:
Once the efficient frontier is delineated, the next question is: What is the optimal
portfolio for the investor? To determine the optimal portfolio on the efficient
portfolio on the efficient frontier, the investor’s risk returns trade off must be
known. Exhibit represents the to illustrative indifference curves which reflect risk
and return tradeoff functions note that all points lying on an indifference curve
provide the same level of satisfaction. The indifference curves Ip and Iq represents
the risk return tradeoffs of two hypothetical investors, P and Q both P and Q like
most investors are risk averse. They want higher returns to bear more risk. Q is how
ever more risk averse than P Q wants a higher expected return for bearing a given
amount of risk as compared to P. In general, the steeper the slope of the indifference
curve the greater the degree of risk aversion.
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Expected returns
Each person has a map of indifference curves. Exhibit shows the indifference
map for P .in this figure, four risk-return indifference curves, Ip1,Ip2,Ip and Ip4 are
shown. All the points lying on a given indifference curve offer the same level of
satisfaction. For example, points A and B, which lie on the indifference curve Ip1
offer the same level of satisfaction; likewise, points R and S, which lie on the
indifference curve Ip2 represents a higher level of satisfaction as compared to the
indifference curve Ip1,the indifference curve Ip3 represents a higher level of
satisfaction when compared to the indifference curve Ip4 and so on.
Optimal portfolio:
Given the efficient frontier and the risk-return indifference curves, the optimal
portfolio is found at the point of tangency between the efficient frontier and a utility
indifference curve. In exhibit two investors P and Q, confronted the same efficient
frontier, but having having different utility indifferences curves (Ip1,Ip2,and Ip3 for
P and Iq1,Iq2, and Iq3 for Q )are shown to achieve their highest utility indifference
curves ( Ip1,Ip2, and Ip3 for P and Iq1,Iq2, and Iq3 for Q ) are shown to achieve
their highest utility at points P* and Q* respectively.
Expected return
41
Optimal portfolio with lending and borrowing:
Let us introduce yet another opportunity. Suppose that the investor can also
lend and borrow money at a risk free rate of R percent as shown in the exhibit. If he
lends a portion of his funds at Rf and invests the balance in S (S is the point of the
efficient frontier of risky portfolios where the straight line emanating from R is
tangential to the efficient frontier of risky portfolios), he can obtain any combination
of risk and return along the line that connects Rf and S further, if he borrows some
more money and invests it along with his own funds, he can reach a point G, beyond
S, as shown in the exhibit. Thus, with the opportunity of lending and borrowing, the
efficient frontier changes. It is no longer AFX. Rather, it becomes Rf SG because
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RfSG which is superior to the point on AGX> For example, compared to C on AFX,
D on RfSG offers a higher expected return for the same standard deviation, likewise,
compared to Y on AFX, Z on RfSG offers the same expected return with a lower
standard deviation: and so on.
Since RfSG dominates AFX, every investor would do well to choose some
combination of R and S a conservative investor may choose a point like u, where as
an aggressive investor may choose a point like V. However, note that both investors
choose some combination of Rf and S. While the
Conservative investor weighs R more in his portfolio, the aggressive investor weighs
S more in his portfolio (in fact, in his portfolio, the weight assigned to Rf is negative
and that assigned to S is more than 1).
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Thus, the task of portfolio selection can be separated in to two steps:
a) identification of, the optimal portfolio of risky securities.
b) Choice of combination of R and S depending one’s risk attitude. This is the
import of the celebrated separation theorem, first enunciated by James Tobin, a
Nobel laureate in Economics.
Portfolio management frame work
Selection of asset mix:
In your scheme of investments, you should accord top priority to a residential cover.
In addition, you must maintain a comfortable liquid balance in a convenient form to
44
meet expected and unexpected expenses in the short run. Once these are adequately
provided for, your asset mix decision in concerned mainly with financial assets
which may be divided into broad categories, via stocks and bonds. ‘stocks’ include
equity shares (which in turn may be classified into income shares, growth shares,
blue chip shares, cyclical shares, speculative shares, and so on) and units / shares of
equity-oriented schemes of mutual funds (like Master shares,Birla advantage, and so
on).
‘Bonds’, defined very broadly, consist of non convertible-debentures of
private companies, public sector bonds, gilt-edged securities, RBI relief bonds, units
/ shares of debt-oriented schemes, deposits in the national savings shame, and so on.
The basic characteristics of this investment are that they earn a fixed or near-fixed
return. Should the long-term stock-bond mix be 50:50 or 75:25 or any other?
Referred to as the strategic-asset mix decision (policy asset maxi decision), this is by
far the most important decision to be made by the investor. Empirical studies have
shown that nearly 90percent of the variance of the portfolio return is explained by its
asset mix. Put differently, only 10 percent of the variance of the portfolio return is
explained by the other elements like’ sector rotation’ and’ security selection. Given
the significance of the asset-mix decision, you should hammer it out carefully.
Conventional wisdom on asset mix:
The conventional wisdom on asset mix is embodies in two
propositions:
Other things being equal, an investor with greater tolerance for risk should tilt the
portfolio in favors of stocks; where as an investor with lesser tolerance for frisk
should tilt the portfolio in favour of bonds. This is because in general, stocks are
riskier than bonds and hence raen higher returns than bonds. JAMES H.LORE
45
summed up the long view well when he stated:’ the most enduring relation in all
finance perhaps is the relation ship between returns on equities or stocks and returns
on bonds.’ a similar observation can be made when we look at the returns on stocks
and bonds in India for the last two decades.
Other things being equal, an investor with a long investment horizon should tilt his
portfolio in favor of stocks where as investor with a shorter investor horizon tilts his
portfolio in favour of bonds. This is because while the expected return from stocks is
not sensitive to the length of the investment period, the risk from stocks diminishes
as the investment period over the period 1950-1980 in the U.S capital market. One
can reasonably expect a similar pattern in other capital markets as well. Why does
the risk of stocks diminish as the investment period lengthens? As the investment
period lengthens, the average yearly return over the period is subject to lesser
volatility because low returns in some years may be
Offset by high returns in other years and vice versa. Put differently there is benefit
of ‘time diversification’. As period, they invest through many periods. Hence they
are more comfortable investing in riskly assets over long run that over the short run.’
The implication of the above proposition are captures in exhibit which shoes how
the appropriate percentage allocate to the stock component of the portfolio is
influenced by the two basic factors, viz risk tolerance and investment horizon. To
obtain the corresponding percentage allocation for the bond component of the
portfolio, simply subtract the number given in the exhibit from 100.you will find this
matrix, helpful in resolving in your asset-mix decision.(of course, before using this
matrix, you should define your risk tolerance / short time horizon may be raised to
10 percent or so. In a similar manner, the 100 percent, given for the cell high risk
tolerance / long time horizon the benefit of diversification across stocks and bonds.
46
Appropriate percentage allocation in the stock component of the portfolio
Time horizon Risk Tolerance
Low moderate High
short 0 25 50
Medium 25 50 75
Long 50 75 100
For the sake of simplicity, we assumed there is a single investment horizon. In
reality, an investor may have multiple investment horizons corresponding to varied
needs. For example, the investment horizons corresponding to various goals sought
by an investor may be as follows:
Investment goal investment horizon
Buying a car two years
Constructing a house ten years
Achieving financial independence twenty years
Establishing a charitable institution thirty years
Obviously, the appropriate asset mix corresponding to these investment goals would
be different.
Formulation of portfolio strategy:
After you have chosen a certain asset mix, you have to formulate the
appropriate portfolio strategy. Two broad choices are available in this respect, an
active portfolio strategy or a passive portfolio strategy.
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Active portfolio strategy
An active portfolio strategy is followed by most investment professional and
aggressive investors who strive to earn superior returns, after adjustment for risk.
The four principal vectors of an active strategy, as shown in the exhibit are:
Market timing
Sector rotation
Security selection
Use a specialized concept
Vectors of active portfolio management
Highly active highly passive
Market timing …………………………………………..
Sector rotation …………………………………………..
Security selection …………………………………………
Use a specialized concept …………………………………………..
Market timing:
This involves departing from the normal or strategy or long run asset mix to
reflect one’s assessment of the prospects of various assets in the near future.
Suppose your investible resources for financial assets are 100 and your normal or
strategic stock bond mix is 50:50. in the short hand and intermediate run however
you may be inclined to deviate from your long-term asset mix. If you expect stocks
to out perform bonds, on a risk-adjusted basis , in the near future, you may perhaps
set up the stock component of of your portfolio to say 60 or 70 percent. Such an
action, of course, would raise the beta of your portfolio. On the other hand, if you
48
expect bonds to out-perform stocks, on a risk adjusted basis, in the near future, you
may set up the bond component of your portfolio to 60 percent or 70 percent. This
will naturally lower the beta of your portfolio.
Marketing timing is based on an explicit or implicit of general market
movements. The advocate of market timing employs a variety of tools like business
cycle analysis, moving average analysis, advance-decline analysis, and econometric
models. The forecast of the general market movement derived with the help of one
or more of these tools is tempered by the subjective judgment of the investors.
Often, of course, the investor may go largely by his market sense.
Anyone who reviews the fluctuation in the market may be tempered to play
the play of marketing timing. Yet very few seem to succeed in this game. A careful
study on market timing argues that a investment manager must forecast the market
correctly 75 percent of the time to break-even, after taking into account the cost of
errors and the cost of transactions. As FISHER BLACK said: ’the market does just
as well, on average, when the investor is out of the market as it does when he is in.
so he loses money, relative to a simple buy-and-hold strategy, by being out of the
market part of the time’. Echoing a similar view JOHN BOGLE, chairman of the
vanguard group of investment companies said: ‘ in 30 years in this business, I do not
know any one who has done it successfully and consistently, nor any body who
knows any body who has done it successfully and consistently. Indeed, my
impression is that trying to do market timing is likely to be counter productive. “
JOHN MAYNARD KEYNES rendered a similar verdict decades ago:’ we have not
proved able to take much advantage of a general systematic out of and into ordinary
shares as a whole at different phases of the trade cycle. As a result of these
49
experiences I am clear that the idea of whole sale shifts is for various reasons
impracticable and indeed undesirable.
Sector rotation:
The concept of sector rotation can be applied to stocks as well as bonds. It is,
however, used more commonly with respect to the stock component of the portfolio
where it essentially involves shifting the weightings for various industrial sector
based on their assessed outlook. For example, if you believe that cement and
pharmaceutical sector would do well compared to other sector in the forthcoming
period (one year, two years, or whatever,) you may overweight these sectors,
relative to their position in the market portfolio.
With respect to binds, sector rotation implies a shift in the composition of the bond
portfolio in terms of quality (as reflected in credit rating ), coupon rate, term to
maturity, and so on. For example. If you anticipate a rise in interest rates you may
shift from long-term bonds to medium-term or even short-term bonds. Remember
that a long-term is sensitive to interest rate variation compared to short-term bond.
Security selection:
Perhaps the most commonly used vector by those who follow an active
portfolio strategy, security selection involves a search for under-priced securities. If
you resort to active stock selection, you amyl employ fundamental and or technical
analysis to identify stocks which seem to promise superior returns and concentrate
the stock component of your portfolio on them. Put differently, in your portfolio
such will be over weighted relative to their position to their market portfolio. Like-
wise, stocks which are perceived to be unattractive will be underweighted relative to
position in their market portfolio. As far bonds are concerned, security selection
50
calls for choosing bonds which offer the highest yield to maturity at a given level of
risk.
Use of a specialized investment concept:
A fourth possible approach to achieve superior returns is to employ a
specialized concept or philosophy, particularly with respect to investment in stocks.
As CHARLES D.ELLIS put it, a possible way to enhance returns” is to develop
profound and valid insight into the forces that drive a particular centre of the market
or a particular group accompanies or industries and systematically exploit that
investment insight or concept.”
Some of the concepts that have been exploited successfully by investment
practitioners are
1. Growth stocks:
2. Neglected or ‘out of favour’ stocks:
3. Asset-ridge stocks:
4. Technology stocks:
5. Cyclical stocks:
The advantage of cultivating a specialized investment concept or philosophy is that
it will help you to:
A) Focus your efforts on a certain kind of investment that reflect your abilities
and talents,
B) Avoid the distraction of pursuing other alternatives, and
C) Master an approach or style though sustain practice and continual self-
critique. As against these merits, the great disadvantage of focusing exclusively on a
51
specialized concept or philosophy is that it may become obsolete. The changes in
market place may cast a shadow over the validity of the basic premise underlying
the investment philosophy. Give your profound condition and long-term
commitment to your specialized investment concept or philosophy, you may not
detect the need for change till it becomes rather late.
Passive strategy:
The active strategy is based on the premise that the capital market is characterized
by inefficiencies which can be exploited by resorting to market timing or sector
rotation or security selection or use of a specialized concept or some combination of
these vectors. The passive strategy, on the other hand, rests on the tenant that he
capital market is fairly efficient with respect to the available information. Hence,
the search for superior returns through an active strategy is considered futile.
Operationally, how is the passive strategy implemented? Basically, it involves
adhering to the following two guide lines:
1. Create a well-diversified portfolio at a pre-determined level of risk.
2. Hold the portfolio relatively unchanged over time, unless it becomes in
adequately
3. Diversified or inconsistent with the investor’s risk-return preferences.
Selection of securities:
Selection of bonds (fixed income avenues)
You should carefully evaluate the following factors in selecting fixed income
avenues
1. yield to maturity:
52
2. the yield to maturity for a fixed income avenue reoresents the rate of retun
earned by the investor if he invests in the fixed income avenue and holds it
till its maturity.
3. risk of default:
4. to asses the risk of default on a bond, you may look at the credit rating of the
band. If no credit ratin is available, examine relevant financial ratios (like
debt-to-equity ratio, times interest earned ratio, and earning power) of the
firm and asses the general prospects of the industry to which the firm
belongs.
a. in yester years, several fixed income avenues offered tax shield; now
very few do so.
b. Liquidity:
If the fixed income avenue can be converted wholly or substantially into cash at a
fairly short notice, it possesses liquidity of a high order.
Selection of stocks (equity shares)
Three broad approaches are employed for the selection of equity shares:
technical analysis looks at price behavior and volume data to determine whether the
share will move up or down or remain trend less. Fundamental analysis focuses on
fundamental factors like the earnings level the growth prospects, and risk exposure
to establish the intrinsic value and the prevailing market price. The random selection
approach is based on the premise that the market is efficient and securities are
properly priced.
Portfolio execution:
By the time the portfolio management is reached , several keys issues have
been sorted out. Investment objectives and constraints have been specified, asset
53
mix has been chosen, portfolio strategy has been developed, and specific securities
to be included in the portfolio have been identified. The next step is to implement
the portfolio plan by buying and or selling specified securities in given amounts. this
is the phase of portfolio execution which is often glossed over in the portfolio
management literature. However it is an important practical step that has an
significant bearing on investment results. Further, it is neither simple nor costless as
is sometimes naively felt. For effectively handling the portfolio execution phase,
you should understand what the trading game is like, what is the nature of key
players (transactors) in this game, who are the likely winners and the losers in the
game, and what guidelines should be borne in mind while trading.
Trading game:
Security transactions tend to differ from normal business transactions in two
fundamental ways:
1) a business man entering in to a transaction does so with a reasonable
understanding of the motives of the party on the other side of the transaction. For
example, when you are buying a piece of machinery, you are well aware of the
motives of the seller. In constrast, in a typical securities transaction, the motive , and
even the identity, of the other party is not known.
2) While both parties generally gain from a business transaction, a security
transaction tends to be a zero sum game. A security offers the same future cash flow
stream to the buyer as well as the seller. So, apart from considerations of taxes and
differential risk-bearing abilities, the value of security is the same to the buyer as
well as the seller. Hence constructive motives which guide business transaction are
not present in most security transactions. This means that if a security transaction
benefits a party it hurts the other.
54
Put differently, if one wins the other loses.
Motives for trade:
Why do people trade? One motivation is cognitive. People trade because they think
they have superior information or better methods for analyzing information.
However, most traders tend to confuse noise or randomness for information. As
MEIRSTATMON says:
‘’ traders are patterns in stock prices that are random, and they relay on intuitive
judgement even when systematic analysis would have demonstrated that their
judgement in incorrect’’.
Another motivation is emotional. Trading ca be a source of pride. As
MEIRSTATMAN says; ‘’ specifically people trade because trading brings with it
the joy of pride. When someone decides to buy a stock he assumes responsibility for
the decision. A stock that goes up brings not only profits, but also pride.’’ Of course,
if the trading decision turns out to be wrong it can inflict losses and cause
embarrassment.
Key players:
Securities market appears to be thronged by four types of players or transactions:
value-based transactors, information-based transactors, liquidity based transactors,
and pseudo-information based transactors. Generally, the dealer or the market maker
intermediates between these transactors.
Value based transactors:
A value based transactor (VBT, here after) carrier out extensive analysis of publicly
available information to establish values. He trades when the difference between the
value assessed by him and the prevailing market prices so warrants. Typically, he
places limit orders to buy and sell with a spread that is large enough to provide a
55
cushion against errors of judgement and informational lacunae. For example, a VBT
who establishes an intrinsic value of RS 50 for some equity share may place an
order to buy if the net price is RS 40 or less. VBT s generally serve as the anchor for
the trading system and establish the framework for the operations for the dealers.
VBT s typically don’t place much important on time.
Information based transactors:
An information based transactor ( IBT here after) transacts on the basis of
information which is not in public domain and, therefore, not reflected in security
prices. Since he expects this information to have a significant impact on prices, he is
keen to transact soon. To him, time is a great value. While the VBT is concerned
about how much the market will move towards the justified price. (the price
established in him based on fundamental analysis ), the IBT is bothered about how
soon the market price will move up or down in response to new information. The
IBT generally employs ‘incremental’ fundamental analysis (as he is concered about
price movements in response to new information). In addition, he uses technical
analysis because timing is crucial to his operations. Unlike the VBT, he rarely tries
to establish the absolute value of a security. Instead, he tries to assess the likely
impact of marginal fundamental and technical developments.
Liquidity based transators:
A VBT, like an IBT, trades to reap investment advantage. A liquidity based
transactor (lbt, hereafter) however, trades primarily due to liquidity considerations.
He trades to deploy surplus funds or to obtain funds or to rebalances the portfolio.
His trades are not based on a detailed valuation exercise ( as is the case of VBT) or
access to some information that is not already reflected in market price ( as is the
56
case of an IBT) . Hence he may be regarded as an information less trader who is
driven mainly by liquidity considerations.
Pseudo-information Based transactors:
A pseudo-information based transactor IPIBT, hereafter) believes that he
possesses information that can be a source of gain, even though yhat information is
already captured or impounded in the price of the security. Or, he exaggerates the
value of new information that he may come across and forms unrealistic
expectations. Essentially, the PIBT, like the LBT, is an information less trader. Yet,
he mistakenly believes that the possesses information which will generate
investment advantage to him.
Dealers:
A dealer intermediates between buyers and sellers gager to transact. The
dealer is ready to buy or sell with a spread which is failly small for an certain
security may be 80-82. this means that the dealer is willing to buy at 80 and sell at
82. the dealer’s quotations may move swiftly in response to changes in demand and
supply forces in the market. Typically the dealer’s bid-ask price band lies well with
in the bid-ask price band set by the VBT. This means that the bid price of the dealer
is higher than the bid price of the VBT and the ask price of the dealer is lower than
the ask price of VBT. The dealer’s function is such that he is not required totake a
view on whether a security is worth buying or worth selling.he simply plays the role
of the intermediary and he does not plan to hold the position he acquires in
accommodating a transaction. Hence the dealer is a remarkably innocuous person.
Lurking behind the dealer, of the cource
, is the transistor’s real trading adversary, whose identify and motive are often
unknown.
57
Exhibit summaries the trading trading motivations, time horizons, and time
Transactor Motivation Time horizon Time vs price
preference
VBT Discrepancy between
value and price
Weeks to months Price
IBT
LBT
New information
release or absorb cash
Hours to days Time
PIBT Apparently new
information
Hours to days Time
Dealer Accommodation Mutes to hours indifferent
Summary of trading Motivations, Time horizons, and Time vs price
preferences
Who wins, who loses
Who wins and who loses in the trading game which is essentially a zero sum game.
It appear that the IBT’S odds of winning are the highest, assuming that his
information is substantiated by the market he is followed by the VBT, LBT, and
PIBT in the that order.
Put differently, the, the above question may be answered as follows:
The IBT seems to have a distinct edge over others.
The VBT tends to lose against the IBT but gains against the LBT and PIBT.
The LBT may have some advantage over the PIBT.
58
Scripts Which I Have Selected
S.L.N.O SECTOR COMPANY
1 ENERGY RELIANCE
2 OIL INDIAN OIL CORP
3 PHARMA CIPLA
4 STEEL JINDAL STEEL
CALUCALTION OF STANDARD DEVIATION OF CIPLA
DATER SHARE
PRICE
R
AVARAGE
R-R
DEVIATIONS
[R-R} SQUARE
DEVIATIONS
6/1/2006 292.2000 297.1196 -4.9196 24.2025
6/2/2006 289.3000 297.1196 -7.8196 61.1461
6/3/2006 290.7500 297.1196 -6.3696 40.5718
6/5/2006 289.5000 297.1196 -7.6196 58.0583
6/6/2006 289.8500 297.1196 -7.2696 52.8471
6/7/2006 289.8000 297.1196 -7.3196 53.5756
6/8/2006 295.4000 297.1196 -1.7196 2.957
6/9/2006 293.6000 297.1196 -3.5196 12.3876
6/10/2006 291.4500 297.1196 -5.6696 32.1444
6/13/2006 290.1000 297.1196 -7.0196 49.2748
6/14/2006 290.4000 297.1196 -6.7196 45.153
6/15/2006 288.2000 297.1196 -8.9196 79.5593
6/16/2006 285.9500 297.1196 -11.1696 124.76
6/17/2006 284.9500 297.1196 -12.1696 148.0992
59
6/19/2006 284.7500 297.1196 -12.3696 153.007
6/20/2006 304.8500 297.1196 7.7304 59.7591
6/21/2006 312.4560 297.1196 15.3304 235.0211
6/22/2006 310.7000 297.1196 13.5804 184.4273
6/23/2006 314.3000 297.1196 17.1804 295.1661
6/24/2006 310.7000 297.1196 13.5804 184.4273
6/26/2006 310.9000 297.1196 13.7804 189.8994
6/27/2006 310.0000 297.1196 12.8804 165.9047
6/28/2006 313.6500 297.1196 16.5304 273.2541
TOTAL 6833.7500 2525.6037
Average (R) = 6833.7500/23 =297.1196
Variane = 1/23-1(2525.6037)
Variance =114.8002
Standard Deviation = Variance
Standard Deviation = 114.8002
Standard Deviation = 10.7145
60
CALUCALTION OF STANDARD DEVIATION OF IOC
DATE
R SHARE
PRICE
R
AVARAGE
R-R
DEVIATIONS
[R-R]2SQUARE
DEVIATIONS
6/1/2006 463.6500 445.6374 18.0126 251.622
6/2/2006 461.5000 445.6374 15.8626 254.8045
6/3/2006 461.6000 445.6374 15.39626 193.5604
6/5/2006 459.5500 445.6374 13.9126 179.8978
6/6/2006 459.0500 445.6374 13.4126 174.5728
6/7/2006 458.8500 445.6374 13.2126 168.029
6/8/2006 458.0000 445.6374 12.9626 134.8524
6/9/2006 457.2500 445.6374 11.6126 62.6092
6/10/2006 453.5500 445.6374 7.6126 57.9517
6/13/2006 453.2500 445.6374 7.6126 27.9649
6/14/2006 450.9000 445.6374 5.2626 19.9148
6/15/2006 450.1000 445.6374 4.4626 2.0661
6/16/2006 444.2000 445.6374 -1.4374 27.9566
6/17/2006 440.3500 445.6374 -5.2874 70.3485
6/19/2006 437.2500 445.6374 -8.33874 206.9973
6/20/2006 431.2500 445.6374 -14.3874 232.1784
6/21/2006 430.1000 445.6374 -15.2374 232.1784
6/22/2006 429.3500 445.6374 -16.2874 265.2794
6/23/2006 432.0500 445.6374 13.5874 184.6174
6/24/2006 433.1000 445.6374 -12.5374 157.1864
6/26/2006 431.0000 445.6374 -14.6374 214.2535
6/27/2006 429.7500 445.6374 -15.8874 252.4095
6/28/2006 423.4000 445.6374 -22.2374 494.502
TOTAL 10249.6500 3958.0283
61
Average (R) = 10249.6500/23 =445.6374
Variane = 1/23-1(3958.0283
Variance = 179.8981
Standard Deviation = Variance
Standard Deviation = 179.8981
Standard Deviation = 13.4126
62
CALUCALTION OF STANDARD DEVIATION OF RELIANCE
DATE
R SHARE
PRICE
R
AVARAGE
R-R
DEVIATIONS
[R-R]2SQUARE
DEVIATIONS
6/1/2006 541.0000 593.5456 -52.5456 2761.0401
6/2/2006 529.8500 593.5456 -63.6956 4057.1294
6/3/2006 533.1500 593.5456 -60.6956 3647.6285
6/5/2006 555.2000 593.5456 -38.3456 1470.385
6/6/2006 552.3000 593.5456 -41.2456 1701.1995
6/7/2006 547.8500 593.5456 -45.6956 2088.0879
6/8/2006 558.4500 593.5456 -35.0956 1231.7011
6/9/2006 559.0500 593.5456 -34.4956 1189.9464
6/10/2006 566.5500 593.5456 -26.9956 726.6044
6/13/2006 569.6000 593.5456 -23.9456 573.3918
6/14/2006 574.0500 593.5456 -19.4956 380.0784
6/15/2006 574.9500 593.5456 -26.9956 345.7963
6/16/2006 590.2500 593.5456 -3.2956 10.8609
6/17/2006 600.2500 593.5456 6.7044 44.9489
6/19/2006 630.5000 593.5456 36.9544 1365.6276
6/20/2006 646.1500 593.5456 52.6044 2767.2228
6/21/2006 654.5500 593.5456 61.0044 3721.5368
6/22/2006 650.6000 593.5456 57.0544 3255.2045
6/23/2006 654.6500 593.5456 61.1044 3733.4948
6/24/2006 648.6500 593.5456 55.1044 3036.4948
6/26/2006 629.5500 593.5456 36.0044 1296.3168
6/27/2006 641.8500 593.5456 48.3044 2333.315
6/28/2006 642.5500 593.5456 49.0044 2401.4312
63
TOTAL 13651.5500 44139.6957
CALUCALTION OF STANDARD DEVIATION OF JINDAL STEEL
R SHARE PRICER
AVARAGE
R-R
DEVIATIONS
[R-R]2SQUARE
DEVIATIONS
DATE
6/1/2006 905.6000 898.0435 7.5565 57.1006
6/2/2006 898.6500 898.0435 0.6065 0.3678
6/3/2006 900.6000 898.0435 2.5565 6.5357
6/5/2006 903.0500 898.0435 5.0065 25.065
6/6/2006 905.0500 898.0435 7.0065 49.091
6/7/2006 901.9000 898.0435 3.8565 14.8726
6/8/2006 899.5500 898.0435 1.5065 2.2695
6/9/2006 900.0000 898.0435 1.9565 3.8279
6/10/2006 900.0500 898.0435 2.0065 4.026
6/13/2006 900.0000 898.0435 1.9565 3.8279
6/14/2006 886.5500 898.0435 -11.4935 132.1005
6/15/2006 899.3000 898.0435 1.2565 1.5788
6/16/2006 879.5500 898.0435 -18.4935 342.0095
Average (R) = 13651.55/23 = 593.5456
Variane = 1/23-1(44139.6957)
Variance = 2006.3498
Standard Deviation = Variance
Standard Deviation = 2006.3498
Standard Deciation = 44.7922
64
6/17/2006 886.0000 898.0435 -12.0435 145.0459
6/19/2006 895.3000 898.0435 -2.7435 7.5267
6/20/2006 897.8500 898.0435 -0.1935 0.0374
6/21/2006 914.0000 898.0435 -15.9565 254.6099
6/22/2006 920.3000 898.0435 22.2565 495.3518
6/23/2006 922.4000 898.0435 24.7065 593.23914
6/24/2006 922.7500 898.0435 24.3565 610.4111
6/26/2006 897.8500 898.0435 -0.1935 0.0374
6/27/2006 888.6000 898.0435 -9.4435 89.1797
6/28/2006 830.0000 898.0435 -68.0435 4626.9179
TOTAL 20654.9000 7468.0298
Average (R) = 20654.9000/23 =898.0435
Variane = 1/23-1(7468.0298)
Variance =339.4559
Standard Deviation = Variance
Standard Deviation = 339.4559
Standard Deviation = 18.4243
CALUCLATED AVERAGE AND STANDARD DEVIATION
Reliance 593.5456 44.7922
Indian Oil 445.6374 13.4126
65
Cipla 297.1196 10.7145
Jindal Steel 898.0435 18.4243
CORRELATION BETWEEN CIPLA & RELIANCE
DEVIATION OF CIPLA
DEVIATION
RELIANCE
COMBINED DEVIATION
DATE RA-RA RB-RB (RA-RA)(RB-RB)
6/1/2006 -4.9196 10.5848 -52.0729
6/2/2006 -7.8196 0.7848 -6.1368
6/3/2006 -6.3696 -0.1152 0.7338
6/5/2006 -7.6196 -3.7152 28.3083
STANDARD DEVIATION
COMPANY NAME PERCENTAGE
RELIANCE 29%
INDIAN OIL 9%
CIPLA 7%
JINDAL STEEL 12%
66
6/6/2006 -7.2696 0.7348 -5.3417
6/7/2006 -7.3196 3.1848 -23.3115
6/8/2006 -1.7196 10.8348 -18.6315
6/9/2006 -3.5196 18.6348 -65.5870
6/10/2006 -5.6696 6.7348 -38.1836
6/13/2006 -7.0196 11.4348 -80.2677
6/14/2006 -6.7196 13.5348 -90.9484
6/15/2006 -8.9196 11.5348 -102.8858
6/16/2006 -11.1696 10.1348 -113.2017
6/17/2006 -12.1696 5.1848 -63.0969
6/19/2006 -12.3696 3.4348 -42.4871
6/20/2006 7.7304 -2.8152 -21.7626
6/21/2006 15.3304 -16.0152 -245.5519
6/22/2006 13.5804 -19.0152 -258.2340
6/23/2006 17.1804 -20.4152 -350.7413
6/24/2006 13.5804 -3.9652 -53.849
6/26/2006 13.7804 -21.6152 -284.0857
6/27/2006 12.8804 -17.4652 -224.9588
6/28/2006 16.5304 -1.6152 -26.6999
TOTAL -2138.9937
CO-Variance (COVAB)=1/23 (-2138.9937)
-92.9997
COVAB
Correlation Coefficient
(PAB)=
67
(Std.A) (Std.B)
-99.9997
-0.7349
(10.7145)(11.81)
CALUCLATED CORRELATION CO-EFFICIENT AND PORTFOLIO
RISK BETWEEN TWO COMPANIES
COMPANY NAME Correlation coefficient Risk (%) Portfolio
CIPLA & RELIANCE -0.6442 15.8189
RELIANCE & INDIAN OIL -0.9343 6.6600
68
PORTFOLIO RISK
P = √ X
12 1
2 + X22 2
2 + 2(X1) (X2) (12) 12
Where X1 = Proportion of Investment in Security 2.
X2 = Proportion of Investment in Security 1.
1 = Standard Deviation of Security 1.
2 = Standard Deviation of Security 2.
X12 = Correlation Co-Efficient between Security 1 and 2.
p = Portfolio Risk.
1. CIPLA & RELIANCE
X1 = 0.83 1 = 11.81
X12 = -0.6442
X2 = 0.17 2 = 44.7922
P = √ X
12 1
2 + X22 2
2 + 2(X1) (X2) (12) 12
(0.83)2(11.81)
2 + (0.17)
2(44.7922)
2+2(0.83)(0.17) (-0.6442)(11.81)(44.7922)
69
0.6889 Х 139.4761 + 0.0289 Х 2006.3412 + 96.1679
96.0851 + 154.1516 15.8189
PORTFOLIO RISK
P = √ X
12 1
2 + X22 2
2 + 2(X1) (X2) (12) 12
Where X1 = Proportion of Investment in Security 2.
X2 = Proportion of Investment in Security 1.
1 = Standard Deviation of Security 1.
2 = Standard Deviation of Security 2.
X12 = Correlation Co-Efficient between Security 1 and 2.
p = Portfolio Risk.
2. RELIANCE & IOC
X1 = 0.68 1 = 13.4126
X12 = -0.9343
X2 = 0.32 2 = 44.7922
P = √ X
12 1
2 + X22 2
2 + 2(X1) (X2) (12) 1
70
(0.68)2(13.4126)
2 + (0.32)
2(44.7922)
2+2(0.68)(0.32) (-0.9343) (13.4126)(44.7922)
83.1847 + 205.4493 – 244.2815
6.66
PORTFOLIO WEIGHTS
CIPLA & RELIANC
FORMULA:
2b – Pab a b
Xa =
2a + 2
b -2Pab a b
Xb = 1 – Xa
Xa = CIPLA
Xb = RELIANCE
a = 11.81 b = 44.7922 Pab = -0.64422
(44.7922)2
– (-0.6442) (11.81) (44.7922)
Xa =
(11.81)2 + (44.7922)2 – 2(-0.6442) (11.81 ) (44.7922)
2006.3412 + 340.7791
=
139.4761 + 2006.3411 + 681.
2347.1203
=
2827.3754
71
= 0.83
Xb = 1 – Xa
Xb = 1 – 0.83 = 0.17
RELIANCE & IOC
FORMULA:
2b – Pab a b
Xa =
2a + 2
b -2Pab a b
Xb = 1 – Xa
Xa = IOC
Xb = RELIANCE
a = 13.4126 b = 44.7922 Pab = -0.9343
(44.7922)2
– (-0.9343) (13.4126) (44.7922)
Xa =
(13.4126)2 + (44.7922)2 – 2(-0.9343) (13.4126 ) (44.7922)
2006.3412 + 561.3086
=
179.8978 + 2479.2639 + 1122.6172
2567.6498
=
3781.7782
72
= 0.68
Xb = 1 – Xa
Xb = 1 – 0.68 = 0.32
CONCLUSIONS FOR TWO ASSETS PORTFOLIO’S
1. CIPLA & RELIANCE
In this combination, as per calculations and study CIPLA bears a proportion of
0.83 and where as RELIANCE bears a proportion of 0.17, which is less
compared CIPLAproportion, the deviation of two companies are 11.8100 for
CIPLA and 44.7922 for RELIANCE
Here risk of CIPLA is lesser than the RELIANCE i.e.
11.8100<44.7922. So investors can invest their money or fund in CIPLA, which
has less standard deviation means less risk.
Where as, the portfolio risk of two companies are reduced to 15.8189.
2. RELIANCE & INDIAN OIL
As per this combination portfolio weights are 0.68 and 0.32 for Indian Oil and
Reliance respectively and standard deviation of Indian Oil is 13.4126 which is less
compare to the standard deviation of Reliance i.e. 44.7922, which means less risk
involved in Indian Oil compare to Reliance. So, to any investor wants to invest his
money or fund in this portfolio, it is suggested that he can invest some portion of
fund in Indian Oil and rest of part in Reliance.
The portfolio risk of the companies Reliance and Indian Oil 6.6600, which is
less than the individual companies risk
73
BIBLIOGRAPHY
V A avadhani, Security Analysis and Portfolio Management, Himalaya publishing
house,Pp 1-18,
Ibid. 436-450.
Donald E fisher and Ronald j jardan, Security Analysis and Portfolio Management,
6th edition, Pearson education, Pp 2-5.
Ibid. 285.
S.Kevin, Portfolio Management, Prentic, hall India pvt ltd.2003, Pp 1-18.
Prasanna Chandra, Investment Analysis Portfolio Management, Tata Mc Graw-hill
Publishing Company ltd, Pp 218-220.
V k Bhalla, Investment management, 10th edition, S chand and company Ltd, Pp
701-710.
WEB SITES:
http://www.Amfindja.Com/
htpp://www.Utimf.Com/
http://www.BseIndia.Com/
http://www.sebi.govt.in/
74