Investment and Portfolio Management | Report

INVESTMENT ANALYSIS
AND PORTFOLIO
MANAGEMENT
Running Head: Investment Analysis and Portfolio Management

Investment Analysis and Portfolio Management
Contents
Introduction................................................................................................................................1
Investment Analysis and Portfolio Management.......................................................................2
a. Calculating the annualised mean return, standard deviation and correlation of Jardine
Matheson Holdings Limited and DBS Group Holdings Limited...........................................3
b. Determining the investment opportunity set of Jardine Matheson Holdings and DBS
Group Holdings stocks...........................................................................................................4
c. Determining the weights on the Optimal Risky Portfolio consisting of Jardine
Matheson Holdings and DBS Group Holdings stocks...........................................................6
d. Calculating the expected return and standard deviation of the above optimal risky
portfolio and plotting it on the investment opportunity sets graph of Jardine Matheson
Holdings and DBS Group Holdings stocks............................................................................8
e. Determining the weights on the Minimum Variance Portfolio consisting of Jardine
Matheson Holdings and DBS Group Holdings stocks...........................................................9
f. Calculating the expected return and standard deviation of the above Minimum
Variance Portfolio and plotting it along with the efficient frontier on the investment
opportunity sets graph of Jardine Matheson Holdings and DBS Group Holdings stocks....10
g. Discussion on the diversification in reference to the efficient frontier and comparison
of the expected return and standard deviation of the optimal risky portfolio and the
minimum-variance portfolio.................................................................................................12
Conclusion................................................................................................................................15
References................................................................................................................................16
Appendix..................................................................................................................................17
1

Investment Analysis and Portfolio Management
Introduction
This report discusses investment analysis and portfolio management. Two stocks that are
chosen for this report are Jardine Matheson Holdings Limited and DBS Group Holdings
Limited. Jardine is a diversified group founded in 1832. It operates in Southeast Asia and
Greater China region in variety of businesses like motor vehicles, food retailing, financial
services, restaurants, mining etc (Jardine, n.d.). DBS was established in 1960’s. It emerged as
a major bank that finance various industries in Singapore. It has presence in 18 global
markets and all the major Asian markets like Singapore, India, China, Hong Kong, Taiwan
and Indonesia (DBS, n.d.).
We will start with the five-year historical price data of these two companies to find their
annualized mean return, standard deviation and correlation. Then we will determine
investment opportunity sets using different weight combination of these two stocks and plot
these. Afterwards, we will determine optimal risky portfolio and minimum variance portfolio
from these investment opportunity sets. Then, we will identify the efficient frontier on the
above plot. Finally, we will discuss the diversification benefits and compare the risk return
characteristics of various portfolio combinations.
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Investment Analysis and Portfolio Management
Investment Analysis and Portfolio Management
(All calculations are done in excel sheet attached in the appendix)
a. Calculating the annualised mean return, standard deviation and correlation of
Jardine Matheson Holdings Limited and DBS Group Holdings Limited.
We have recorded the five-year data of monthly closing prices for Jardine Matheson
Holdings Limited (Yahoo finance, n.d.) and DBS Group Holdings Limited (Yahoo finance,
n.d.). The five-year period used in the analysis is from December 2015 to December 2019.
First the monthly return is calculated for each month in five-year period using the formula:
Return = [P(n) - P(n-1)] / [P(n-1)]
Where,
P(n) is Price of the stock in month n.
P(n-1) is Price of the stock in previous month n-1.
Then, the average monthly return is calculated by taking the average of all the monthly
returns using the Average() function in excel.
Jardine Matheson Holdings DBS Group Holdings
Average Monthly Return 0.41% 1.14%
The Monthly standard deviation is calculated using all the monthly return using STDEV.P()
formula in excel.
Jardine Matheson Holdings DBS Group Holdings
Monthly Standard Deviation 5.20% 6.59%
Annualised mean return is calculated by multiplying average monthly return with 12 and
annualised standard deviation is calculated by multiplying monthly standard deviation with
square root of 12.
Jardine Matheson Holdings DBS Group Holdings
Annualised Mean Return 4.91% 13.63%
Annualised Standard Deviation 18.02% 22.83%
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