Case Studies in Finance: Creating a Diversified Portfolio with Technical Analysis

This case study from Desklib explains how to create a diversified portfolio with technical analysis. It covers the investment philosophy and strategy behind the portfolio, as well as recommendations for investment. The portfolio includes equity shares, short selling, future contract, ETF and LIC, which adequately diversifies the portfolio created for investment. Subject: Finance, Course Code: N/A, Course Name: N/A, College/University: N/A

Running head: CASE STUDIES IN FINANCE
Case Studies in Finance
Name of the Student:
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Table of Contents
Introduction:...............................................................................................................................2
Understanding the philosophy and strategy behind the creation of the Portfolio:.....................2
Recommendation for the investment in portfolio:.....................................................................3
Conclusion:................................................................................................................................6
Reference and Bibliography:......................................................................................................7

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Introduction:
The assessment aims in preparing an adequate portfolio, which could have the
audacity to increase returns while reduce any kind of risk that is lured from capital market.
The portfolio has been created with a certain philosophy of generating higher returns from
investment with the help of technical analysis, while discarding any kind of external threats
which could hinder its progress. The use of adequate technical analysis method has helped in
drafting the portfolio which could sustain volatility in the stock market and improve the
investment capital. The portfolio consists of equity shares, short selling, future contract, ETF
and LIC, which adequately diversifies the portfolio created for investment.
Understanding the philosophy and strategy behind the creation of the Portfolio:
The investment philosophy mainly revolves around the Australian equities which are
listed in small cap. The incremental growth that is seen in Australian equities during the past
year has incited investors to increase their exposure in the sector for raising the level of
returns from investment. Furthermore, the mining industry in Australia has been flourishing
during the past one year, which can be considered and adequate investment opportunity for
all the investors. Therefore, investments in the sector would eventually generate higher
returns and have low risk from investment. The investment philosophy also instigates to use
adequate hedging procedures that could minimise the portfolio risk and allow the investor to
maximize its return. The exposure in ETF, LIC and Short selling also increases the level of
diversity that is needed to formulate the portfolio. Hence, the major investment philosophy
that is used for creating the portfolio is to select stocks, which have higher growth and return
generation capability. Moreover, the technical analysis strategy has been used for creating the
portfolio, where the short-term trend of the stocks is evaluated to detect the investment
opportunity that could be utilised for investment purposes. According to Ahmad et al. (2017),

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creation of portfolio with adequate philosophy allows the investor to maximise the return
from investment by selecting the appropriate stock, which have the highest probability to
generate extra ordinary returns in future,
Recommendation for the investment in portfolio:
Data as on 16-07-18
Particulars Price Number Cost
Equity Shares – Purchases
WISETECH GLOBAL 17.65 6,798 $ 119,984.70
WESTERN AREAS 3.48 34,482 $ 119,997.36
SARACEN MINERAL HDG. 2.06 58,252 $ 119,999.12
ST BARBARA 5.01 23,952 $ 119,999.52
NRW HOLDINGS 1.655 72,507 $ 119,999.09
NAVIGATOR GLOBAL INVESTMENTS 5.47 21,937 $ 119,995.39
INDEPENDENCE GROUP 4.96 24,193 $ 119,997.28
IDP EDUCATION 10 12,000 $ 120,000.00
GATEWAY LIFESTYLE GROUP 2.28 52,631 $ 119,998.68
FREEDOM FOODS GROUP 6.06 19,801 $ 119,994.06
. $ 1,199,965.20
Equity Shares – Short Sales
RETAIL FOOD GROUP 0.43 278,000 $ 119,540.00
LICs and ETPs
FLAGSHIP INVESTMENTS 1.715 65,005 $ 111,483.58
BETASHARES CRO.IDX.ETF 19.43 14,849 $ 288,516.07
Hedged Position for ASX Equity

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Investments
Invest in settlement account (Future
contract ASX 200)
4 25,000 $ 100,000.00
Cash Investment in Cash Management
Trust
Cash Holding (minimum requirement
$200,000)
$ 419,575.16
Total $ 2,000,000.00
The table represents the overall portfolio that has been created for investment
purposes, where adequate financial instruments has been used to increase the returns and
minimise risk from investment. The portfolio holds 10 small cap Australian equities, one
short selling shares, ETF, LIC, and future contract, where 3 stocks listed in the Australian
equities is from the mining sector. selection of the above financial instruments has a
relatively allowed the portfolio to maximize its return, while reduce the overall risk that could
be generated from investment. Cervello-Royo, Guijarro and Michniuk (2015) indicated that
use of portfolio allows the investors to diversify their investment, which helps in maximising
the returns, while reducing the individual risk from each stock. On the contrary, Chandra
(2017) argued that during the financial crisis the overall risk from each stock is higher, which
nullifies the use of portfolio, as the value of whole capital market starts to deteriorate.
Particulars 7/10/2017 7/16/2018 Return
ETF and LIC
FLAGSHIP INVESTMENTS 1.54 1.715 11.36%
BETASHARES CRO.IDX.ETF 12.71 19.43 52.87%

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Equity Shares
WISETECH GLOBAL 6.7 17.65 163.43%
WESTERN AREAS 2.09 3.48 66.51%
SARACEN MINERAL HDG. 1.135 2.06 81.50%
ST BARBARA 2.75 5.01 82.18%
NRW HOLDINGS 0.64 1.655 158.59%
NAVIGATOR GLOBAL
INVESTMENTS
2.4 5.47 127.92%
INDEPENDENCE GROUP 3.17 4.96 56.47%
IDP EDUCATION 4.98 10 100.80%
GATEWAY LIFESTYLE GROUP 1.97 2.28 15.74%
FREEDOM FOODS GROUP 4.4801 6.06 35.26%
Short Selling Stock
RETAIL FOOD GROUP 4.52 0.43 -90.49%
The technical analysis calculation has been presented in the above table, where
historical prices has been used for the above stocks to calculate the returns that has been
generated within the time frame of one year. From the calculation it could be detected that the
investments that has been conducted in Australian equities, ETF, and LIC is based on the
positive returns that has been generated by the above financial instruments. However, the
decline in retail food group has a relatively allowed the portfolio to increase the exposure in
short selling, as the company has been experiencing higher losses due to the increment in
online purchases in Australia. Therefore, shorting the retail group would eventually help the
portfolio to maximize the returns from investment. Hoffmann and Shefrin (2014) mentioned

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that with the help of technical analysis investors are able to understand the short-term trend of
a stock, which helps in making investment decisions.
Conclusion:
The portfolio that has been created in the above assessment mainly has majority of the
financial instrument that can be used by the investor to maximize its return from investment.
the diversification method that has been used for creating the portfolio has adequately
allowed to formulate an investment opportunity, which could generate higher returns while
have the least risk from investment. the use of Technical Analysis has relatively help in
detecting stocks, which have the possibility and probability of higher returns in future. Hence,
the use of the portfolio would eventually generate higher returns from investment, as it
utilizes the Australian equity, which are trending and has provided higher returns in the last
fiscal year. Therefore, using the above portfolio would eventually allow investors to increase
their exposure in the Australian market and banking on the progress that is been portrayed by
the capital market.

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Reference and Bibliography:
Ahmad, M.I., Guohui, W., Rafiq, M.Y., Hasan, M. and Sattar, A., 2017. Assesing
Performance of Moving Average Investment Timing Strategy Over the UK Stock
Market. The Journal of Developing Areas, 51(3), pp.349-362.
Asxhistoricaldata.com. (2018). ASX Historical Data - Free Downloads. [online] Available at:
https://www.asxhistoricaldata.com/ [Accessed 15 Aug. 2018].
Barroso, P. and Santa-Clara, P., 2015. Beyond the carry trade: Optimal currency
portfolios. Journal of Financial and Quantitative Analysis, 50(5), pp.1037-1056.
Cervelló-Royo, R., Guijarro, F. and Michniuk, K., 2015. Stock market trading rule based on
pattern recognition and technical analysis: Forecasting the DJIA index with intraday
data. Expert systems with Applications, 42(14), pp.5963-5975.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Hoffmann, A.O. and Shefrin, H., 2014. Technical analysis and individual investors. Journal
of Economic Behavior & Organization, 107, pp.487-511.
Kang, Y.Q., Xie, B.C., Wang, J. and Wang, Y.N., 2018. Environmental assessment and
investment strategy for China's manufacturing industry: A non-radial DEA based
analysis. Journal of Cleaner Production, 175, pp.501-511.
Lambarraa, F., Stefanou, S. and Gil, J.M., 2015. The analysis of irreversibility, uncertainty
and dynamic technical inefficiency on the investment decision in the Spanish olive
sector. European Review of Agricultural Economics, 43(1), pp.59-77.

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Li, Y., Zheng, B., Chen, T.T. and Jiang, X.F., 2017. Fluctuation-driven price dynamics and
investment strategies. PloS one, 12(12), p.e0189274.
Tam, P.H. and Cuong, N.T., 2018. Effectiveness of Investment Strategies Based on Technical
Indicators: Evidence from Vietnamese Stock Markets. Journal of Insurance and Financial
Management, 3(5), pp.55-68.
Wang, J. and Zhao, T., 2017. Regional energy-environmental performance and investment
strategy for China's non-ferrous metals industry: a non-radial DEA based analysis. Journal of
Cleaner Production, 163, pp.187-201.