Financial Portfolio Analysis

Running head: FINANCIAL PORTFOLIO ANALYSIS
Financial portfolio analysis
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1FINANCIAL PORTFOLIO ANALYSIS
Abstract
Purpose of the study is selecting 5 stocks based on their information regarding historical prices.
After selecting the stock their variance and standard deviation will be computed. The report will
present the vector of the expected return and variance covariance matrix. Vector of the expected
return is signifying that the highest return is provided by CSL that is 11.11% and the lowest is
provided by BHP that is negative 14.88%. In the next part beta of the stocks are computed that
signifies that BHP stock swings most as compared to market over the time period it has highest
beta. Conversely, stock of CSL swings least as compared to market over the time period as it has
lowest beta. Further when Weights of minimum variance portfolio while
βP = 1, the weights
indicate 100% and the advantage sections are summed up additionally. Until further
observation weights are set to the subjective manner and the length of aggregate weight
sums up to 100%. As the portfolio looks in depth, excel solver function is used for
locating most minimal conceivable portfolio variance where the bp = 1.

2FINANCIAL PORTFOLIO ANALYSIS
Table of Contents
Introduction......................................................................................................................................3
Part 1................................................................................................................................................3
Vector of expected return............................................................................................................3
Variance covariance matrix for return.........................................................................................4
Beta of stocks...............................................................................................................................6
Decomposition of total risk.........................................................................................................7
Capital market line.......................................................................................................................8
Security market line...................................................................................................................11
Part B.............................................................................................................................................12
Weights of minimum variance portfolio while
βP = 1..........................................................12
Weights of portfolio that will minimize variance of difference in weekly returns between
AORD index and portfolio........................................................................................................14
Conclusion.....................................................................................................................................15
Reference and bibliography...........................................................................................................16

3FINANCIAL PORTFOLIO ANALYSIS
Introduction
Asset allocation is the technique of investment portfolio that is used balancing the risk
through dividing the assets among primary categories like cash, stocks, bonds, derivatives and
real estate. Each class has different risk and return level and hence they behave differently. For
this particular task stocks of CBA, ANZ, WBC, CSL and BHP will be selected. Major reason
behind choosing these stocks is that they are involved with moderate risks. Further, based on the
past performance of these stocks it is identified that these stocks are consistent performer and
providing consistent return (In.finance.yahoo.com 2019).
Part 1
Vector of expected return
Stocks Return
CBA 0.008232
WBC -0.01464
ANZ -0.04086
NAB -0.04701
BHP -0.14878
CSL 0.111146
The expected value or return of portfolio is equal to product of vector of its asset holding
and vector of asset’s expected value or return. In this case the returns are discrete, as in case of
derivation or continuous that is generated from continuous distributions. The units are used for
values in vector are dependent on application. In some of the cases, the physical units that is the
shares proportions with the total value. Whatever is the selection for the units for finding end of