Advanced Investment Management Assignment

Running head: ADVANCED INVESTMENT MANAGEMENT
Advanced Investment Management
Student Name:
Student Number:
Authors Note:

ADVANCED INVESTMENT MANAGEMENT
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Using the covariance matrix providing discussion regarding the rationale for choosing the 5
specific companies:....................................................................................................................2
Creating 5 different portfolios:...................................................................................................3
Recommending one portfolio to the client and explaining rational for the choice:...................4
Conducting an empirical test of the CAPM by describing the setup of CAPM and justify its
merits:.........................................................................................................................................5
Including a brief report summarizing the recent research regarding active or passive
management of investments:......................................................................................................5
Conclusion:................................................................................................................................6
References and Bibliography:....................................................................................................8
Appendix:...................................................................................................................................9

ADVANCED INVESTMENT MANAGEMENT
Introduction:
The overall assessment directly aims in evaluating five different portfolios and
detecting the most adequate investment option that can be used by the investors to generate
high level of returns in the process. The adequate analysis of the covariance matrix is
conducted to identify the rationale behind choosing the five specific companies for
investment. This would eventually help in creating five different portfolios that would have
significant alterations towards its risk and return attributes. This could eventually help in
adequately recommending one of the portfolios to the client that would be suitable for
appropriate investments. For the evaluation is conducted on the Capital Asset Pricing Model
relevant calculations are conducted for each of the companies to detect and justify its merits.
Lastly, a summarization of the overall results of the recent research is conducted to identify
whether active and passive management of investment it is better for investors.
Discussion:
Using the covariance matrix providing discussion regarding the rationale for choosing
the 5 specific companies:
In the below appendix information regarding the covariance matrix for the five
selected companies is adequate represented this information is conducted to identify the
rationale behind the selection of such organization. The analysis has been conducted on the
basis of covariance values which tend to reach from 0.005601132 to 0.00509459. The
covariance matrix is mainly used for identifying the overall portfolio variance, which is
considered as an appropriate measure to derive the portfolio values and determine the risk
attributes of the investment. The analysis of the covariance value is relatively conducted for
detecting the overall standard deviation and the various condition of a particular stock, which

ADVANCED INVESTMENT MANAGEMENT
is relatively low in comparison to other investment options. The low level of risk factors
involved in the overall investment is relative detected from the covariance table, which can
allow the investors to identify the investment opportunity by diversifying the portfolio to
obtained high returns, and low risk attributes (Albulescu 2015).
One of the additional rationales for selecting National Australia Bank Ltd, ANZ
Banking Group, BHP Group Ltd, CSL Ltd, and Commonwealth Bank Australia is their
presence in the capital market, which is considered to be higher in comparison to its other
industry peers. The company selected for investment has a high level of market cap and
history of higher performance that could provide investors with adequate information
regarding their current trajectory and performance. The investors that have an exposure in the
above companies would eventually detect all the relevant options for securing their
investments and reduce the level of risk exposure to the portfolios. The companies are
considered to be giants in their sector, which could allow them to harness the ever changing
development of the sector.
Creating 5 different portfolios:
Minimum
variance
Lowest
return
Highest
return
Equally
weighted Optimal
E1 E2 E3 E4 E5
CBA.AX 25.15% 0.00% 0.00% 20.00% 27.55%
CSL.AX 35.65% 0.00% 99.83% 20.00% 47.64%
BHP.AX 21.32% 0.00% 0.17% 20.00% 20.05%
ANZ.AX 2.51% 100.00% 0.00% 20.00% 2.94%
NAB.AX 15.37% 0.00% 0.00% 20.00% 1.82%
Portfolio Risk 4.12% 6.36% 5.97% 4.34% 4.23%
Portfolio Return 0.78% 0.08% 1.64% 0.50% 1.00%
The 5 portfolios that has been created for investment is relatively considered on the
basis of the risk and return attributes. Therefore detecting the highest level of returns and the
lowest level of risk is mainly appropriate for identifying the investment opportunity that