Upload
ershad-ali-mondal
View
12
Download
0
Embed Size (px)
DESCRIPTION
Efficient frointier construction
Citation preview
5/19/2018 Report on portfolio Management
1/30
Efficient Portfolio Construction
5/19/2018 Report on portfolio Management
2/30
Date of Submission:
30.12.2014
12/30/2014
5/19/2018 Report on portfolio Management
3/30
A Report on
Efcient Portolio Construction
And Evaluation o Portolio Perormance
Efficient Portfolio Construction
Date of Submission: 30.12.2014
5/19/2018 Report on portfolio Management
4/30
Course Title: Portolio ana!ementCourse Code: "#40$
%u&mitted to:
d' %a(i& )ossain
*ecturer+
,epartment o "inance
-niversit. o ,aa
%u&mitted &.:
d' Ersad Ali ondal
, : 1$#022
,epartment o "inance
-niversit. o ,aa
Date of Submission: 30.12.2014
*etter o Transmittal
5/19/2018 Report on portfolio Management
5/30
30t ,ecem&er+ 2014
d' %a(i& )ossain
*ecturer+
,epartment o "inance
-niversit. o ,aa
,ear %ir+
ts m. pleasure to su&mit m. term paper or te course entitled
%ecurit. Pricin! Portolio Teor. course code is " 5 40$' Tis
report on suc a realistic topic 6ill elp us to e7pand our
teoretical no6led!e' t 6as assi!ned as a partial re8uirement o
te 9Portolio ana!ement ;"#40$< course in last semester'
)o6ever tere ma. &e some mistaes incurred unconsciousl. &.
us' Tis is m. um&le ur!e to .ou to &e rationale or tose
mistaes'
"inall.+ 6ould lie to tan .ou or !ivin! me suc an interestin!
tas 6ic reall. elped us to understand te process develop
insi!t to6ards construction o Portolio'
%incerel. =ours+
d' Ersad Ali ondal
, :1$#022
,epartment o "inance
-niversit. o ,aa
E>EC-T?E %-AR=
5/19/2018 Report on portfolio Management
6/30
@e are assi!ned to mae a report on optimum portolio
construction' As it is a individual tas+ )ere ave selected 1
companies stoc tat are listed in ,aa stoc e7can!e rom
diBerent industries' "or tis purpose 6e ave collected data rom
,%E' Ten ave input inormation o stoc price+ casdividend + stoc dividend+ Ri!t %are ratio+ Ri!t %are Ber
Price+ stoc split o tese companies in E7cel %eet' Ater tat
ave calculate
,ividend =ield+
Capital Dain+
'Covariance atri7+
Total Return+
'Ris "ree Rate + Portolio Ris return+
Ratio Calculation+
a7i Teta Allo6in! @it %ort sale
a7 Teta no sort sale+
in Ris o sort sale+
inimiFin! ris sort sale+
inimiFe ris 6it Diven return Allo6in! %ort sale
Return o sort sale
,erivation o Efcient "rontier
Ratio Calculation+
Ater doin! diBerent matematical and statistical tools and
tecni8ues are used' Gnall. !et tat portolio 6ei!t or eac
situation' )ere ave seen tat i sort sellin! is allo6ed
individual can !et i!est teta 6it minimum ris tan tat o
an. oter com&inations' To do so+ econom. anal.sis+ industr.
anal.sis and selection o proGta&le industries are so mucimportant' ts not eas. to do all tese anal.sis' Hecause te
present condition o our econom. is so poor 6it multiple
pro&lems' nterpretation o te calculated results is also made
6ic is ver. essential to understand te portolio tat ave
constructed' "inall. dra6in! Efcient rontier &. usin! te
5/19/2018 Report on portfolio Management
7/30
com&ination o minimum ris. portolio or a !iven level o results'
Ater tat various ratios calculated or m. portolio and maret
portolio and comparision &et6een te ratios 6eter m. portolio
is under or overperormed tan maret'
ACKNOWLEDGEMENTACKNOWLEDGEMENT
6ould lie to pa. our !ratitude to all o te related &oos+
autors+ te compan. personnel and related @e& %ites tat
elped us a lot or te completion o tis report &eore+ durin!+
and ater te 6orin! period' At Grst 6e 6ould lie to
acno6led!e te Almi!t.+ 6o elped us ever. time and 6as
6it us and !ave us moral support and stren!t ever. moment'
Te presentation o tis report is o a !reat e7pectation in our HHA
pro!ram and 6e are 8uite app. to su&mit it dul. appl.in! tat
6e tin sould ave to &e included' Teoretical no6led!e
sould &e valued 6en it is successull. applied in practical Geld'
n tis respect+ 6e ound tis report a !reat opportunit. to deal
6it 9Efcient Portolio Construction or selected 1 Companies'
Origin of the report
o6 a da.s education is not (ust limited to &oos and classrooms'
n toda.s 6orld+ education is te tool to understand te real
6orld and appl. no6led!e or te &etterment o te societ. as
6ell as &usiness' "rom education te teoretical no6led!e is
o&tained rom courses o stud.+ 6ic is onl. te al 6a. o te
5/19/2018 Report on portfolio Management
8/30
su&(ect matter' Practical no6led!e as no alternative' Te
perect coordination &et6een teor. and practice is o paramount
importance in te conte7t o te modern &usiness 6orld in order
to resolve te dicotom. &et6een tese t6o areas' Tereore+ or
te H'H'A' pro!ram am assi!ned to prepare a report on 9Portolio
construction &ased on 10 listed companies o ,%E'
Objective of the Report
To o&tain no6led!e a&out construction
To increase our e7perience in data collection anal.sis'
To no6 a&out stoc maret mecanism
To no6 a&out optimiFin! te portolio &. ma7imiFin! teta
and minimiFin! ris 6it and 6itout sort sale To &e a&le to construct efcient rontier and optimum
rontier' mplement te no6led!e earned rom tis course to
evaluate te stocs o te compan.' To increase competence in investment decision'
Scope of the Report
To Gnd out te report re8uirements 6e ad to no6 a&out teeatures and mecanism o constructin! efcient rontier' @e alsoave collected some inormation rom diBerent ne6spapers andperiodicals' @e 6ould lie to mention tat tis researc 6as onl.concentrated' A tou! eBort ad &een placed 6ile te
inormation 6as collected and a careul stud. o tem made tisreport loaded 6it inormation and several recommendations6en tere is also pointed out decisions made'
*imitations o te Report
5/19/2018 Report on portfolio Management
9/30
@ile preparin! tis report durin! data collection ave acedseveral pro&lems'
,ue to limited access o te data+ tis stud. ma. not &e
perect to te 100I percent'
*ac o enou! e7perience in anal.Fin! o data'
,ue to inade8uate inormation+ in#dept anal.sis could not
&e done in te report'
%ources and etodolo!.
Tis reports researc is &ased on portolio construction' Tedata t.pes are mainl. secondar. data' %econdar. data t.pes
are collected trou! diBerent pu&lications' %econdar. sources:
@e&sites'
Annual Report
,%E trade inormation
Company Selectionn selectin! te companies 6itin an industr.+ at Grst 6e ave to
select te industr. &ased on teir A? and P/E ratio' Te industr.
selection also includes su&(ective (ud!ment re!ardin! uture
economic conditions and !overnment polic.' Ater selectin! te
industr.+ te compan. are selected &ased on te A? and P/E
ratio o te compan. relative to te A? and P/E ratio o te
selected companies'
Deneral caracteristics o te selected companies
*isted in ,%E'
5/19/2018 Report on portfolio Management
10/30
Te compan. to &e te aret leader o te industr. or close
competitor Compan. to &e in te !ro6t sta!e
A? more tan 100'
aret CapitaliFation more tan H,T 10+000million
nl. A Cate!or. companies are considered'
*isted &eore 200J
Compan. Cate!or.ConGdence Cement AEH* A"ine "oods *td' AEastern *u&ricant *td' A
e!na Petroleum *td' AKe.a Cosmetics *td' A*an!a&an!la "inance *td' AContinental nsurance *td' A%8uare Te7tile AAC *td' AH,' *AP% A,HH* A,E%C A
Dreen ,elta insurance A,*C AAC* Pran A
Subjective judgment
"inancial sector comprises o Hans+ nsurances+ H"s and man.
oter su§ors or industries+ is te &ac&one o our econom.'
on Han "inancial nstitutions are oldin! a ma(or maret sare
amon! te listed companies in ,%E Cemical and Parmaceutical
industries in Han!lades are intensel. competitive+ e7port
oriented and are dominated &. e6 top maret pla.ers'
En!ineerin! sector is !ro6in! 6it te !ro6t o te econom.'
"oods and Allied Products sector are also competitive+ e7port
oriented and are dominated &. e6 top maret pla.ers' "uel and
5/19/2018 Report on portfolio Management
11/30
Po6er industr. is anoter industr. tat is liel. to ace u!e
development in te uture .ear
CA*C-*AT TERPRETATCA*C-*AT TERPRETAT
ave made some assumptions or te anal.sis purpose'
@e ave ad(usted an. dividend or &onus sare durin! te
time %plited sares are ad(usted to mae e8uivalent 6it previous
monts price'
ave calculate ,ividend =ield &. tis ormula
Capital !ain calculation
Calculation of mean return
Ater ad(ustin! te price te mont 6ise return or eac individual
stoc is calculated in lo! orm' Tis is &ased on te researc o
"ama tat te stoc returns are lo! normall. distri&uted' %o+ &.
5/19/2018 Report on portfolio Management
12/30
usin! te lo!aritm 6e ensure te normalit. o return distri&ution
6ic is a prior condition or our urter calculation o mean+
variance and covariance'
use te ollo6in! ormula or te calculation o te mean return:
ReturnL ,ividend .ield M Capital Dain
Ten Total return is calculated &. tis ormula
Ten 6e ave calculated te mean return
Ris ree rate:
"or calculatin! ris ree rate+ 6e tae Han!lades Han si7 mont
treasur. &ill rate as te ris ree rate' Te data are taen rom
Appendi7#2 o te annual report o Han!lades Han or te .earendin! 2012#2013' @e use $'3I as ris ree rate'
Portfolio Return, excess return, risk and theta
5/19/2018 Report on portfolio Management
13/30
n tis matri7 variances and co#variances o 1 securities are
!iven and it is assumed tat all securities ave e8ual 6ei!t o
e8ual'
"or tis 6ei!t te e7cess portolio return is 1'4I
Portolio e7cess return is 1'4 6ic is calculated &.
L-*T;E2:T2+,4:,1J< tis ormula'
5/19/2018 Report on portfolio Management
14/30
Ris is J'NI is calculated &.
L-*T;E2:T2+-*T;E4:T1J+-4:-1J
5/19/2018 Report on portfolio Management
15/30
Te Teta is 1'$ is calculated &. LH22/H24 ormula'
5/19/2018 Report on portfolio Management
16/30
Maximum heta !ith "o Short Sell
Te ma7imum teta tis portolio can !enerate is 2'N' )ere
e7cess portolio return is 4O I and portolio ris is 1OI 6ic are
5/19/2018 Report on portfolio Management
17/30
&etter tan previous return and ris
5/19/2018 Report on portfolio Management
18/30
Maximum heta #llo!ing Short Sell
@en sort sell is allo6ed+ Teta is urter increased' t is
possi&le &ecause portolio ris is reduced and e7cess return is
increased' @ei!t or eac asset is:
%ecurities 6it te ne!ative si!n sould &e sort sell' "or
instance+ AC + ,HH*'Te sales proceed rom sort sell and te
ori!inal und is used to &u. securities 6it positive si!n'
inimum Ris 6it o %ort %ell:
5/19/2018 Report on portfolio Management
19/30
inimum ris o tis portolio is #'0I' tere is no sort sell tan
it is not possi&le to lo6er ris tan tis'
)ere+ te compan. 6ei!ts are
Minmi$ing Risk !ith short sale
-nder tis situation+ our o&(ective is to determine te minimum
ris tat must &e &orne &. te investor 6o old tis portolio' n
tis case our o&(ective is+
H. usin! solver 6e ave ound te ollo6in! results as so6n
&elo6
5/19/2018 Report on portfolio Management
20/30
n tis situation te e7cess return per unit o ris is a&out #'4I'
Te compan. as a minimum portolio return is 0'01' %o+ te
investor 6o olds tis portolio must &ear a portolio ris a&out
OI' t cannot &e possi&le to &ear ris &elo6 tis'
Te 6ei!t o te securities under tis situation is !iven &elo6
"or a !iven return minimiFe ris 6itout sort sale
Tis 6ill &e applica&le 6en te investor 6ants to acieve a
certain amount o return trou! minimum ris 6itout sort sale'
Hut in tis situation it is not possi&le to acieve return a&ove te
ma7imum return amon! te individual assets' Hecause t is onl.
possi&le to invest te 6ole und in one return ma7imiFin! asset
in case o no sort sale' Tis process is also necessar. to contract
efcient rontier and optimum portolio'
H. usin! solver 6e ave ound te ollo6in! results as so6n
&elo6:
5/19/2018 Report on portfolio Management
21/30
)ere+ or te !iven return o 40I+ te minimum ris or te
compan. is a&out 0'11N' To acieve tis return at minimum ris'
"or tis te investment @ei!t is
Minimi$e risk for a given return !ith short sale
t is also possi&le to minimiFe ris or a !iven return' Tis 6ill &e
applica&le 6en te investor 6ants to acieve a certain amount
o return trou! minimum ris' Tis process is also necessar. tocontract efcient rontier and optimum portolio'
H. usin! solver 6e ave ound te ollo6in! results as so6n
&elo6
5/19/2018 Report on portfolio Management
22/30
)ere+ or te !iven return o JI+ te minimum ris or te
compan. is a&out 0''13J' To acieve tis return at minimum ris
te investment sould &e tese ollo6in! 6ei!t'
Efcient rontier
Te efcient rontier consists o dominant portolio' ,ominant
portolio is one tat dominates oter portolio o assets in terms o
ris and return' n te oter and+ 6it te e7istence o risless
lendin! and &orro6in! rate+ te optimum portolio or an.
investors is te portolio o assets tat is tan!ent to te capital
maret line'
@it our calculated ma7imiFed teta te !rap or efcient and
optimum rontier is created &. usin! te ollo6in! steps:
Te minimum ris and its respective return is calculated
or 6it and 6itout sort sale'
Te minimum return is increased at a certainpercenta!e eac time and te respective minimum risor !iven return is calculated usin! te solver unction'
Te riss are put into te C* unction to determine te
C* return'
5/19/2018 Report on portfolio Management
23/30
Te ris+ return and C* are put into te scatter !rap
to Gnd te !rap or efcient rontier and optimumrontier+
t is appeared rom te a&ove !rap tat Efcient "rontier
6it sort sale is more at ris is 11I 6ere return is O0I' Tis
investors 6it indicates tat 6en sort sales are allo6ed te
investor 6ill !et more e7cess return per unit o ris' Te optimum
rontier or te minimum ris 6it sort sales is so6n in te
a&ove !rap' All te investors 6o are allo6ed to sort sale old
te portolio A' Hut teir portion o investment in optimum
portolio and risless asset depends on teir personal ris
preerence'
%&cient 'rontier 'or minimi$ing risk !ith short sale
5/19/2018 Report on portfolio Management
24/30
%&cient frontier for minimi$ing risk !ith no short sale
Portolio Perormance Evaluation
As a Portolio mana!ers dut. is to minimiFe ris and ma7imiFe
return'
@e ave t6o ma(or re8uirements o a Portolio ana!er
5/19/2018 Report on portfolio Management
25/30
Re8uirement 1 can &e acieved eiter trou! superior timin!
or superior securit. selection' A P can select i! &eta securities
durin! a time 6en e tins te maret 6ill perorm 6ell and lo6
;or ne!ative< &eta stocs at a time 6en e tins te maret 6ill
perorm poorl.'
Conversel.+ a P can tr. to select undervalued stocs or &onds
or a !iven ris class'
Re8uirement 2 ar!ues tat one sould &e a&le to completel.
diversi. a6a. all uns.stematic ris ' =ou can measure te level o
diversiGcation &. computin! te correlation &et6een te returns
o te portolio and te maret portolio' A completel. diversiGed
portolio correlated perectl. 6it te completel. diversiGedmaret portolio &ecause &ot include onl. s.stematic ris'
%ome portolio evaluation tecni8ues measure or one
re8uirement< and not te oterQ some measure or complete
diversiGcation and not te oterQ some measure or &ot+ &ut
dont distin!uis &et6een te t6o re8uirements'
%ometimes P perormance &ased solel. on te rate o return'
Te. 6ere a6are o ris+ &ut didnt no6 o6 to measure it orad(ust or it' %ome investi!ators divided portolios into similar ris
classes ;&ased upon a measure o ris suc as te variance o
return< and ten compared te returns or alternative portolios
6itin te same ris class'
@e sall loo at some measures o composite perormance
speciall.
%arpe Ratio
Tre.no rratio
Sension Alpa ratio
+m#s8uared ratio
5/19/2018 Report on portfolio Management
26/30
inormation ratios
and sortino ratios tat com&ine ris and return levels into a
sin!le value'
Sharpe Portfolio Performance Measure
Te %arpe measure or maret portolio is
As te %arpe measure o m. portolio ;%pL1'J< is less tan te
%arpe measure o maret portolio ;%pL1'$3
5/19/2018 Report on portfolio Management
27/30
As te Tre.nor measure o m. portolio ;TpL#0'1O< is lo6er tan
te Tre.nor measure o maret portolio ;TmL0'22
5/19/2018 Report on portfolio Management
28/30
CC*-% A, RECE,ATCC*-% A, RECE,AT
"rom te a&ove anal.sis it is seen tat+ minimum ris and
ma7imum return can!es 6it sort sell' Ris is lo6er and return
is i!er 6en sort sell is allo6ed tan 6en it is not allo6ed' t
appens &ecause 6it sort sell te investor can tae a position
&e.ond is efcient portolio' )e can &orro6 and sell te sare
6ose price 6ill all in uture and invest te sales proceed 6it is
o6n und to assets 6ose price 6ill increase' H. tis process e
can earn more return and diversi. is ris to a !reater de!ree'
@en ris is minimiFed+ more unds are allocated to te asset
6ose variance is lo6er &ut return is also lo6er' Hut 6en Teta
is ma7imiFed i!er amount o asset is invested in te i!er
return asset' @it te inclusion o more ne!ativel. correlated
securities+ ris can &e minimiFed more even at ero'
5/19/2018 Report on portfolio Management
29/30
Appendi7 and Hi&lio!rap.:
i' @e&sites:
,%E
o 666'dse&d'or!
%toc Han!ladeso 666'stoc&an!lades'com
@iipedia
o 666'6iipedia'or!
ii' Reerences:
nvestment Anal.sis and Portolio ana!ement &. Reill.
Hro6n'
nvestment &. Hodie+ ane and arcus'
http://www.dsebd.org/http://www.stockbangladesh.com/http://www.wikipedia.org/http://www.stockbangladesh.com/http://www.wikipedia.org/http://www.dsebd.org/5/19/2018 Report on portfolio Management
30/30