Assignment on Investment Analysis and Portfolio Management

Running head: INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Investment Analysis and Portfolio Management
Name of the Student:
Name of the University:
Author Note

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INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Table of Contents
Introduction 2
Discussion 2
Annual mean return 2
Standard Deviation 3
Correlation 3
Portfolio Standard deviation 3
Expected return 4
Optimal Risky Portfolio 4
Minimum Variance Portfolio 5
Expected Return on Optimal Risky Portfolio 5
The standard deviation on Optimal Risky portfolio 6
Expected Return on Minimum Variance Portfolio 6
Standard Deviation on minimum variance portfolio 7
Effective Frontier Curve 7
Conclusion 7
Reference 9

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Introduction
This study will analyze two stocks that are the Singapore Airlines stock and the
Wilmar International stock. It will analyze the calculation of the annualized return of the two
stocks. The risk taken by the investor when investing in the two stocks will also be analyzed
with the help of the standard deviation of the two stocks. The correlation between the two
stocks will also be analyzed. Different proportions of the two stocks will be taken to examine
the amount of risk and return associated with them. This will help to find the best
composition of the portfolio. The optimal risky portfolio composition of the two stocks will
also be analyzed. The risk associated and the expected return from the optimal risky portfolio
will be calculated. Also, the minimum variance composition portfolio of the two stocks will
be calculated.
Discussion
Annual mean return
The annual return for both the stocks have been calculated on a monthly basis in
which various aspects of the stocks have been analyzed. The average monthly return has been
determined for each of the stocks in order to well view the same from the portfolio
perspective. Here the annualized mean returns of Singapore airlines stock and Wilmar
International have been compared. The annualized mean return of Singapore airlines stock
shows a negative value of (0.03983) while the annualized mean return of Wilmar
International show a positive value of 0.069623 this means that Wilmar International has
given positive returns to the investors who invested in its stocks for the period of five years
(Hopp and Greene 2018). While the Singapore Airlines stock has incurred loss to its investors
over a period of five years.

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Standard Deviation
In order to well evaluate the stocks from the perspective of risk involved we would be
calculating the standard deviation that is associated with the stocks. The same would be well
helping us in determining the volatility that is associated with each of the stocks analyzed.
For Singapore Airlines the standard deviation of the return from its stock is 0.1420736 which
means that the returns from its stocks have not met the expected return. Also, for Wilmar
International, the standard deviation is 0.21155. The standard deviation associated with the
Wilmar Stock has been comparatively higher than the Singapore Airline Stock.
Correlation
Here the correlation between the returns from stocks of Singapore Airlines and the
returns from the stocks of Wilmar International is 0.22334. Correlation shows the level of
degree of relationship between the two set of variables. In this case it is important to note that
level of correlation has been comparatively less which is good when considered from a
portfolio perspective. It is important to note that a lower level of correlation between the
stocks analyzed and considered would be further help the investors build a better portfolio
which would not only modify the return, but also reduce the risk attached with the portfolio.
Comparison between the risk, return, and correlation
The risk and return between the two stocks can be well analyzed based on the returns
and risk that is associated with the bond. It is important to note that the Wilmar Stock on a
comparative basis had a lower set of returns, however from a portfolio optimization process
the same can also be used whereby we can well short sell the stock in order to generate
positive return for the stock.

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Portfolio Standard deviation
If the portfolio consists of 100% of Singapore Airlines stock and 0% of Wilmar
International stock then the standard deviation of the portfolio is 0.142074 which is high.
When the portfolio consists of 70% of Singapore Airlines stock and 30% of Wilmar
International stock then the standard deviation of the portfolio is 0.117976 which means this
is the optimal point that has the lowest amount of risk. But low risk on the investment in the
two stocks also means that return from the investment will be low (Grit 2019). When the
portfolio consists of 0% of Singapore Airlines stock and 100% of Wilmar International stock
then the standard deviation of the portfolio is 0.21155 which means that the risk is the highest
here.
Expected return
It has been seen that the expected return is negative and to its lowest point when the
portfolio comprises 100% of Singapore Airlines stock and 0% of Wilmar International stock
(Brinckmann et al. 2019). The expected return from the portfolio that comprises the two
stocks Singapore Airlines and the Wilmar International stock is highest when the investment
in Singapore Airlines stock is 0% and that of Wilmar International Stock is 100% but the risk
is also very high.
Optimal Risky Portfolio
The efficient frontier is the plot of the different expected returns when the investment
is done in different percentages of the two stocks that are Singapore Airlines and Wilmar
International (Tipu 2019). The optimal portfolio is formed at that point where the risks are
least and the returns from the investment in the two stocks are highest for every unit of risk
(Watson, McGowan and Cunningham 2018). Here the optimal risky portfolio is highest for
the investment in the stocks of Wilmar International. This is due to the fact that the returns

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are lower for the investment in the Wilmar International stocks. While the optimal risky
portfolio for the Singapore Airlines stock is negative which shows that the risks are low and
also the returns are also negative. The investor will combine both the Singapore Airlines
stock with the risk of negative 0.00126 with the Wilmar International stock with a risk of
1.0012638. This will reduce the overall risk that the investor will have to face. This is the
optimal point for the composition of the portfolio of the two stocks.
Minimum Variance Portfolio
Here the variance of Singapore Airlines stock is higher than the stock of Wilmar
International. The investor will combine the stocks of Singapore Airlines with a variance of
0.689169 with the stock of Wilmar International that has a variance of 0.3108311. This is the
combination that the investor will use in his portfolio so that the high price fluctuations of
one stock are covered by the low price fluctuations of another stock.
Expected Return on Optimal Risky Portfolio
The optimal risky portfolio consists of two different types of stocks that are the stocks
of Singapore Airlines and the stocks of the Wilmar International (Kidambi 2017). These two
stocks are invested in different proportions that are 70% of Singapore Airlines stock and 30%
of Wilmar International stock. This is the optimal risky portfolio that has negative 0.00126 of
Singapore Airlines stock and 1.0012638 of the Wilmar International stock. This is the
optimal risky portfolio. This will result in the maximum possible outcome from the portfolio
and for every unit of risk that the investor has assumed (Wynne 2016). The optimal risky
portfolio for a portfolio that has two stocks is designed in such a way that the total stock of
the portfolio is equal to one. One stock in the portfolio will be high or greater than one and
the other stock will be low or negative such that the sum of the stock of those two stocks is
equal to zero. This will ensure that the investor does not have to face higher risks and also get
proper returns from the portfolio. The optimal risk of the Singapore Airlines stock is equal to

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one minus the Wilmar International stock. Here the expected return from the optimal risky
portfolio is equal to 0.069761 which is optimum when considered with the amount of risk it
is generating as compared to otherwise that of an individual stock. This return is the
maximum return that can be achieved with the use of an optimal amount of risk. The return
has been l
The standard deviation on Optimal Risky portfolio
The two stocks Singapore Airlines and Wilmar International have to be included in
the portfolio in the ratio of minus 0.00126 and 1.0012638. This is the optimal ratio for
achieving the optimal amount of risk. Here the standard deviation the optimal risky portfolio
is 0.211818 which is low but positive. This is achieved with the use of the optimal risky
portfolio (Kusumaningrum and Hidayat 2016). The expected return from the portfolio of the
two stocks that are the Singapore Airlines stock and that of the Wilmar International stock is
created by assigning the weights or the percentages of the two stocks (Hofer 2016). The
percentages of the weights of the two stocks are multiplied with the respective returns.
Finally, all the individual products are added to each other. Here the expected return is
calculated with the use of the optimal portfolio ratios of the Singapore Airlines stock and the
Wilmar International stock (Bursik, Jackson and Cyr 2017).
Expected Return on Minimum Variance Portfolio
For choosing the composition of the two stocks that are the Singapore airlines stock
and the Wilmar International stock. The composition of the two stocks in the portfolio under
the minimum variance situation was found to be 0.689169 of the Singapore Airlines Stock
and 0.3108311 of the Wilmar International stock. Under the minimum variance composition
of the portfolio, the composition of the two stocks is chosen in such a way that the portfolio
has less fluctuation in the price. If one has a high fluctuation in the price the other has low
fluctuation or negative fluctuation to cover the other stock. Here the expected return from the

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minimum variance portfolio of the two stocks that are the Singapore Airlines and the Wilmar
International is found to be negative 0.00581 which is not good. The key reason why the
portfolio cannot be accepted is particularly due to the negative returns as the minimum
variance portfolio aims to reduce the standard deviation by maximizing the best possible
return. In this case when we went for reducing the portfolio by giving an optimal weights to
each of the security the return generated by these stocks has been negative and hence cannot
be accepted.
Standard Deviation on minimum variance portfolio
The standard deviation on the minimum variance portfolio is the amount of risk that
will be taken by the investor when he invests in the portfolio consisting of the two stocks
Singapore Airlines and Wilmar International but having minimum variance. Investing in the
minimum variance portfolio has the benefit that if the stock has high volatility then it is
covered with the low volatility of the other stock (McKenzie 2019). This helps the investor to
get at least a minimum level of expected return on the portfolio. The assessment of the
standard deviation of the minimum variance portfolio is the calculation of the risk that is
involved in the portfolio when there is low fluctuation in the two stocks (Watson and
McGowan 2019). Here the standard deviation on the minimum variance portfolio is 0.117944
which is quite low. The key reason why the standard deviation of the portfolio is low is
particular due to the principles and approach that has been followed for making the portfolio.
The minimum variance portfolio well says that it tries to reduce the standard deviation with
the highest possible return.
Effective Frontier Curve
Here, the diversified portfolio must consist of 1.001264 portions of the Wilmar
International stock and a negative 0.00126 portions of the Singapore Airlines stock which is
the optimal risky portfolio composition as it has the highest return for the lowest amount of

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risk. The minimum variance portfolio must not be considered by the investor as it yields
negative returns. Efficient Frontier is the optimal point in this case the highest set of expected
return for a defined level of risk or the lowest possible set of risk for a given set of expected
return. The efficient frontier well suggest that in order to well achieve a higher set of
expected return the weightage that should be given to the Singapore Airlines should be
negative 0.00126 and proceeds the amount into Wilmar Stock. If the same process is adopted
then we can well expect a return of about 6.97% from the portfolio with a SD of about
21.18%. It is important to note that efficient frontier well shows the series of best available
points that are available for an investors which can well give them a higher set of return along
with the modified risk level. Now the key point which it undertakes as a key principle is to
well diversify the amount between two asset class so that the return get accordingly modified
with lowest possible risk.
Minimum Variance portfolio Vs Optimal Risky portfolio
The efficient frontier shows the set of optimal portfolios that can be well created with
the highest level of offering that is well offered for a defined level of risk. The aim of the
minimum variance portfolio on the other hand well aims at reducing the risk to the lowest
possible state. The optimal risky portfolio has the composition of the Singapore Airlines
stock of negative 0.00126 and of the Wilmar International stock of 1.001264. This is because
of the Singapore Airlines stock having negative returns. The optimal risky portfolio has a
higher risk than the minimum variance portfolio because the standard deviation is high but
the minimum variance portfolio has low risk as the standard deviation is low. The minimum
variance portfolio is not good as the returns are negative as it aims to minimize the risk as
much as possible. The risk on the optimal risky portfolio is high but the return is positive.
The return generated by the mean variance portfolio was calculated to be around -0.00581and
the standard deviation for the portfolio was 0.1179 which is comparatively less than the risk

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level of the optimal portfolio. It is important to note that minimum variance portfolio gives a
higher weightage to the standard deviation observed for the stock that has a lower SD and in
this case it has given higher weightage to the Singapore Airline Stock.
Conclusion
This study concludes that the investor must use an optimal risky portfolio as a method
to earn returns. This is because under the optimal risky portfolio method the investor can earn
positive gains. The annualized return of the Singapore Airlines stock is negative. The
annualized return on the Wilmar International stock is positive but low. The standard
deviation on the Singapore Airlines stock is lower than the standard deviation of the Wilmar
International stock. This means that the Wilmar International stock has higher risks than the
Singapore Airlines stock. When the different proportions of the two stocks in the portfolio are
analyzed it is found that the lowest risk is when the portfolio consists of 70% of Singapore
Airlines stock and 30% of Wilmar International stock. But the return is highest when the
stock includes 100% of Wilmar International stock and 0% of Singapore Airlines stock.
Again, the optimal risky portfolio consists of a negative figure for the composition of the
Singapore Airlines stock and a value of more than one for the Wilmar International stock. But
the minimum variance portfolio has a composition of 0.689169 of the Singapore Airlines
stock and 0.3108311 of the Wilmar International stock. But the use of the minimum variance
portfolio will incur a loss for the investor. But the risk of the optimal risky portfolio is higher
than the minimum variance portfolio. The optimal risky portfolio is found to be better here as
it has higher expected returns.

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