Financial Markets and Portfolio Management AAF0406

Financial Markets and
Portfolio Management
AAF0406

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
SECTION A.....................................................................................................................................3
A. Comment on the performance of the business and analyse various statistical tools to
determine the performance of the business.................................................................................3
B. Calculate Covariance and correlation between the stocks and comment on the results of the
outcome........................................................................................................................................4
C. Using CAPM Model ascertain the beta of the company and its impact on the portfolio.......4
D. Explain the mean return of the stock and state whether the stock is over priced or under
priced...........................................................................................................................................6
SECTION 2.....................................................................................................................................6
A. Evaluate the two stocks which will provide more return to the investor................................6
B). Define the risk and return of the portfolio mix and also explain the meaning of Minimum
Variance Portfolio........................................................................................................................6
C). Design portfolio with the minimum annual return more than 10%.......................................7
D). Calculate Sharpe ratio and alpha of the portfolio and explain the measures that needs to be
taken by the client........................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
The financial market is defined as a market in which people trade financial securities at
the low transaction cost. This includes any place or a system which provides buyers and sellers
the means to trade financial instruments. This facilitates the interaction between those who need
capital with those who have to invest in capital. There are various types of financial market such
as stock market, bond market, commodities market, derivative market. There are various
function of the financial market which provides free and regulated system for the selling and
buying the big amount of money. It is very important for the investors to have the knowledge of
various aspects in order to invest in the appropriate manner and at the right place. This report
will include the calculations of the various aspect which is analysis of the companies from
London stock exchange, and based ion analysis construction of the portfolio (Aboussalah, and
Lee, 2020).
MAIN BODY
SECTION A
A. Comment on the performance of the business and analyse various statistical tools to
determine the performance of the business.
From the data calculated in excel it can be seen that the average value of share of Tesco,
Tesla, Toyota Motors and Shell Plc are 231.13, 460.62, 149.01 and 42.46. this shows the price
which belonged to the stock most of the time in the year. Average return of the stocks shows
that the shares of Tesco provides a return of 23.44% which means that over the period of time it
had provided a return of more than 23.44%. Tesla's return is more than 14 times which suggest
that it can be added to the portfolio to increase the return of the portfolio. Toyota Motors has
provided returns of 42.64% in the recent years. Shell Plc shares have shown negative return of
the company.
Average: Average is the mean of the data given. Average is calculated by adding the values of all
the data and dividing it by the total number of observations (Carlei, and et., al., 2020).