Investment Analysis and Portfolio Management

The report analyzes the creation of investment portfolios and identifies viable investment options for investors. It explores the concept of Efficient Frontier and highlights the significance of minimum variance portfolio. Subject: Investment Analysis and Portfolio Management

Running head: INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Investment Analysis and Portfolio Management
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1INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Executive Summary:
The report analyses all the relevant points regarding the investment portfolio creation, while
detecting the viable investment option presented to investors. Further analysis is mainly
conducted on Efficient Frontier, which allows the investors to detect the investment options, that
would suit their investment criteria. The investment asset that is analyzed are Australian shares,
US shares, Brent oil, Australian bonds and US fed funds. Moreover, adequate statistical
calculations such as covariance, correlation and bordered covariance are mainly used for
identifying the best variable template that is used for completing the overall Efficient Frontier.
Lastly, the significance of minimum variance portfolio is highlighted, which is currently
demanded by maximum of the investors who have conservative investment approach.

2INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Table of Contents
Introduction:....................................................................................................................................3
1. Briefly discussing about the five asset class in context to AM, GM, and SD:............................3
2. Discussing the implications of the five assets on efficient frontier and CAL:............................7
3. Stating the reasons behind the popularity of Minimum variance portfolio, while synthesise
about the modern portfolio:...........................................................................................................10
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12

3INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Introduction:
The main focus of the overall assessment is to identify and create an adequate level of
portfolio at could be utilized by investors for improving Britain from the capital exposure. The
portfolio created in the assessment directly focuses on the efficient Frontier and minimum
variance portfolio, as it allows the investors to identify and select the most viable investment
opportunity. Further analysis is based on the statistical calculations, which are used to identify
the return and risk contributions of each asset class. The major class that is used in the
assessment is Australian shares, US shares, Brent oil, Australian bonds and US fed funds.
Moreover, adequate statistical calculations such as covariance, correlation and bordered
covariance are mainly used for identifying the best variable template that is used for completing
the overall Efficient Frontier. Lastly, the significance of minimum variance portfolio is
highlighted, which is currently demanded by maximum of the investors who have conservative
investment approach.

4INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
1. Briefly discussing about the five asset class in context to AM, GM, and SD:
Australian Shares (AUD) S&P/ASX 200; with dividends and splits:
The information regarding Australian shares with dividend and splits is relatively
depicted in the above tables, which is used in different statistical calculations such as arithmetic
mean, Geometric mean, standard deviation and variance. From the relevant analysis, it is
detected that Australian shares is considered to be one of the most volatile and risky investment
in comparison to the other investment class. The overall arithmetic mean of the asset classes at
the levels of 5.06% while the geometric mean is at 3.7145%. The difference between the
arithmetic and geometric mean directly provides information regarding the volatility and the risk
that is related to the fluctuating prices of Australian shares (Geng, Fan and Shaikh 2017). Further

5INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
analysis has depicted that the conditions of the asset class is at the levels of 2.5215% for variance
and 15.8792% for standard deviation, which is considered to be higher. The maximum returns
that is provided from the Australian shares at the levels of 30.8%, while the minimum returns is -
41.3%. The drastic difference between the minimum and maximum returns of the Australian
shares directly state about the volatility that is present in the class, which might directly affect
the portfolio risk of an investor.
Australian Bonds (AUD) RBA cash rate in December:
Australian bonds directly provide information regarding the risk free asset, which is
mainly used by investors minimise risk from their investment. The calculation has directly
indicated that Australian bonds are considered to be one of the appropriate investment options
with an arithmetic mean of 4.065% and geometric mean of 4.0518%. The low difference
between the arithmetic and geometric mean directly states about the minimal situations that is
conducted on the return generation capability of the asset. Therefore, investors with the help of
the Australian bonds are able to minimise the level of risk involved in investment while
generating nominal returns in the process. Thus, the information in the above table directly state
about the risk criteria of the investment, which is at the levels of 1.694% for standard deviation
and 0.0288% for variance. Consequently, the risk contribution of the asset class is relatively low
in comparison to other asset class, which states that investment in the Australian bonds would
directly reduce the risk conditions of the portfolio (Chandra 2017). On the other hand, the asset
has a maximum return value of 6.8%, while the lowest return is at 1.5%.
US Shares (USD) S&P500: Total Annual Return with dividends:
The third class that is evaluated in the above table is the US shares with total annual
returns and dividends. The US shares is considered to be highly risky in comparison other

6INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
investment class leaving Brent oil, as they have the variance at 3.057%, while the standard
deviation at 17.4856%. The high level of risk attributes of the asset class is considered to be most
risky for investors, as it would increase the investment risk. The arithmetic mean of the asset
classes is at the level of 7.1575% while geometric mean is at 5.6152%. The staggering difference
between the arithmetic and geometric mean provides insight on the volatility that is present on
the fluctuations of US shares return. The risk contribution of the asset class is mainly supported
by the maximum and minimum returns, which is at the levels of 32.39% and negative -37%. The
difference between the minimum and maximum returns provides insight on the uninterrupted
fluctuations that is conducted on the US shares. The investors can use the US shares in their
portfolio to generate higher returns while accommodating the high level of risk associated with
the asset class (Hammoudeh et al. 2014).
US Fed Funds Rate (USD) in December:
The US Fed fund rates are considered to be one of the risk free asset that is traded in the
United States, where investors can use the asset class to minimize the level of risk involved in
investment. The calculation has directly provided insight on the risk and return conditions of the
asset class, where the geometric mean is at the levels of 1.8196% while the arithmetic mean is at
1.8395%. In a similar instance, the risk and standard deviation of the asset is also considered to
be the second lowest in comparison to other asset. The variance is at the levels of 0.0431% while
the standard deviation is that 2.0760%, which makes the investment in US fund rate risk free in
comparison to other investment options. The difference between arithmetic and geometric mean
is minimal, which states about the lowest fluctuations that is present within the asset class.
Lastly, the maximum and minimum values of the US fed fund rate is at the levels of 6.4% and

7INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
0.07%, which does not speak about the high fluctuations that is present assets price
movement(Delfim and Hoesli 2018).
Brent Oil (USD):
One of the most risky investment options that are calculated in the above table is the
Brent oil. The Brent Oil asset class is considered to be one of the riskiest investment options, as
it has a standard deviation value of 50.2576%, while a variance value of 25.2580%. The high
levels of standard deviation and variance directly states about the volatility that is present in the
price fluctuations of Brent oil. In the similar process, the maximum return that is provided by
Brent oil is at the levels of 172.6% while the minimum returns is at -56.6%. Thus, investors to
generate high level of returns while accommodating high risk in that portfolio can conduct the
investment in Brent oil. The further analysis of the calculation has directly stated that Brent oil
has a arithmetic mean of 21.1550% while a geometric mean of 11.70280%. The major difference
between the geometric and arithmetic mean is due to the volatility and price fluctuations that are
present within the Brent oil asset class. Therefore, investors can use the investment class to
improve the returns from the portfolio while accommodating for the risk attributes of Brent oil
(McKay, Shaoiro and Thomas 2018).

8INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
2. Discussing the implications of the five assets on efficient frontier and CAL:
The information in the above tables directly provides calculations for correlation matrix,
covariance matrix and bordered covariance matrix. The details would eventually help in
determining the most viable investment option that is presented to the investors by utilizing the
appropriate Efficient Frontier calculation. Thus, with help of covariance and correlation matrix
adequate risk calculation is mainly conducted for the bordered covariance matrix, which is

9INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
utilized in identifying the different kind of weights certain asset class, should have to obtain the
targeted returns. Therefore, by utilizing, the appropriate data from the above table relevant
calculations has been conducted to present the best viable portfolio risk and portfolio returns for
different weights. The use of adequate calculation it is detected that bordered covariance Matrix
can be used to identify the best possible risk and return ratio for investors.
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
Efficient Frontier and Capital Allocation Line
Efficient frontier CAL
Portfolio risk
Portfolio return

10INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
The graph directly presents information regarding the overall capital allocation line and
efficient Frontier, which can be used by investors to identify the viable investment options
presented to them. The table provides a list of portfolio risk and portfolio returns that can be used
by an investor to identify the viable risk and reward ratio that could allow them to generate the
targeted returns from their investment. The calculation of Sharpe ratio and capital asset line has
also been conducted to determine the best possible investment scenario for investor can use to
support its investment criteria and in return generate the maximum level of income from their
portfolio.
Efficient Frontier line directly projects a curve diagram tourist attributes of a particular
investment is a relatively lower in comparison to the return contribution. The minimum returns
generated from a portfolio are 2.5%, which is considered the risk free asset. Therefore, it is
understood that investors would rely on risk free assets to generate returns when the returns are
lower than 2.5%, as calculated from the efficient Frontier. Hence, the contribution of the
investors are mainly conducted when the returns of the investment is the higher than the rate.
This is the main reason why the curve of the overall efficient Frontier is not high in comparison
to the standard graphs. Investors with the help of above graph can identify the minimum variance
portfolio and the optimum portfolio, which could help them to support their investment needs.
The minimum variance portfolio and optimal portfolio method provides investors with the
information regarding the different segments of risk and return conditions (Hong, Juneja and Liu
2017).

11INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
3. Stating the reasons behind the popularity of Minimum variance portfolio, while
synthesise about the modern portfolio:
The information presented in the above figure provides insight on the overall minimum
variance portfolio that has been created with the help of the efficient Frontier. The minimum
variance portfolio has been stated that with the conditions of 1.58% the portfolio could generate
a return of 3.94% by making adequate combinations of different asset class weights. Minimum
variance portfolio is considered to be one of the best viable investment options that allow
investors to minimize the risk exposure in the capital market. Normative theory is considered to
be a standard or norm of behavior that investors pursue in constructing a portfolio, which directly
indicates that modern portfolio theory, is normative. The comparison of minimum variance
portfolio and modern portfolio theory has mainly stated about the overall difference between the
perspectives of an investor. The minimum variance portfolio is considered to be the most
attractive and best possible option that is used by investors all around the world, as it allows
them to mitigate the risk from investment. Santacruz (2016) indicated that investors have
conservative investment approach uses the minimum variance portfolio, as it focuses on risk free
asset investment, while improving the benefits from the portfolio exposure.
Conclusion:
After analyzing all the relevant points regarding the investment portfolio creation, it has
been detected that the most viable investment option presented to investors is minimum variance

12INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
portfolio theory. Investors by utilizing the minimum variance portfolio theory are able to identify
the best viable investment option for creating the portfolio that has the lowest rate of risk
associated with investment. Further analysis is mainly conducted on Efficient Frontier, which
directly allows the investors to identify the overall risk and return parameters of different
portfolios that could be used to suit their investment criteria. The efficient Frontier has been
calculated by utilizing different types of statistical calculations such as arithmetic mean, standard
deviation, covariance and correlation. After analyzing all the relevant parameters of the five-
selected asset class, the best viable investment option is analyzed. Thus, it could be understood
that with the help of Efficient Frontier investors can identify the minimum variance portfolio and
detect the most viable investment option that could suit their investment needs.
References:
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-hill education.
Delfim, J.C. and Hoesli, M., 2018. Real Estate Risk Factors and Portfolio Allocation (No.
eres2018_124). European Real Estate Society (ERES).
Geng, J.B., Ji, Q., Fan, Y. and Shaikh, F., 2017. Optimal LNG importation portfolio considering
multiple risk factors. Journal of Cleaner Production, 151, pp.452-464.

13INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Hammoudeh, S., Nguyen, D. K., Reboredo, J. C., and Wen, X. 2014. Dependence of stock and
commodity futures markets in China: Implications for portfolio investment. Emerging Markets
Review, 21, 183-200.
Hong, L.J., Juneja, S. and Liu, G., 2017. Kernel smoothing for nested estimation with application
to portfolio risk measurement. Operations Research, 65(3), pp.657-673.
McKay, S, Shaoiro, R and Thomas, R. 2018, ‘What free lunch? The costs of
overdiversification’, Financial Analysts Journal, vol. 74, no. 1, pp. 44-57.
Santacruz, L 2016, ‘Asset allocation theory and practice in Australian investment
management’, The Journal of Wealth Management, vol. 19, no. 2, pp. 47-67.