Finance and Portfolio Construction

Running Head: Finance and Portfolio Construction
1
Project Report: Finance and Portfolio Construction

Finance and Portfolio Construction 2
Contents
Introduction.......................................................................................................................3
Investment Statistics.........................................................................................................3
Diversify the investment exposure...................................................................................4
Portfolio construction.......................................................................................................5
Conclusion........................................................................................................................6
References.........................................................................................................................7
Appendix...........................................................................................................................8

Finance and Portfolio Construction 3
Introduction:
Portfolio is a group of financial assets which may include stocks, commodities, bonds,
cash equivalents, currencies etc. Portfolio is prepared by the investors and the financial
analyst in order to reduce the risk level and customize the investment on the basis of the
investors. Portfolio construction is a process in which optimal mix of the stocks is selected in
order to achieve the maximum return through reducing the level of risk1. In the report, the
portfolio of 4 securities has been created through reducing the associated risk of investment.
Investment Statistics:
On the basis of the available data of 4 funds and the historical data of MSCI world
equity index, the investment statistics tools have been applied to measure the stock
performance in the market. Below table represents the outcome of different statistics:
Equities Fund 1 Fund 2 Fund 3 Fund 4
Mean 0.48% 1.05% 0.52% 0.69% 0.78%
Variance 0.18% 0.23% 0.10% 0.05% 0.08%
Standard
Deviation 0.042 0.048 0.032 0.023 0.029
Covariance
-
0.034% 0.053% 0.051% 0.046%
Beta -0.1897 0.29899 0.28559 0.26026
Correlation:
Fund 1 Fund 2 Fund 3 Fund 4
Fund 1 1
Fund 2 0.429473 1
Fund 3 0.326296 0.684874 1
Fund 4 0.147471 0.789101 0.706411 1
1 Grzegorz Michalski. "Operational Risk in Current Assets Investment Decisions: Portfolio
Management Approach in Accounts Receivable (Agro Econ-Czech: Operační Risk v
Rozhodování o Běžných Aktivech: Management Portfolia Pohledávek)." (2008).