Stock Portfolio Analysis: Genting & PPB

This assignment involves a comparative analysis of different stock portfolio options in Malaysia. The focus is on evaluating the potential returns and risks associated with investing in individual stocks like Genting Malaysia and PPB Group, as well as incorporating ETFs into the portfolio mix. The analysis aims to identify the most favorable investment strategy for achieving optimal return while managing risk.

PORTFOLIO INVESTMENT
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
Computation of risk and return of common stock & exchange traded fund................................1
Calculation of monthly return on Stock 1 and 2..........................................................................2
Calculation of monthly return on CIMB FTSE Asean 40 Malaysia ETF....................................4
Calculation of correlation between Genting Group and PPB Group...........................................5
Calculation of correlation between Genting Group and CIMB FTSE ASEAN 40 Malaysia......5
Calculation of correlation between PPB Group and CIMB FTSE ASEAN 40 Malaysia............6
PORTFOLIO CONSTRUCTION...................................................................................................7
Portfolio 1: Stock 1 and ETF.......................................................................................................7
Portfolio 2: Stock 2 and ETF.......................................................................................................7
Portfolio 3: Stock 1 and stock 2...................................................................................................8
Portfolio 4: Stock 1, Stock 2 and ETF.........................................................................................8
COMPARISON OF RISK OF THE PORTFOLIOS.......................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

Index of tables
Table 1 Calculation of monthly return of Genting Malaysia and PPB Group.................................2
Table 2 Calculation of expected return on Genting Malaysia.........................................................4
Table 3 Calculation of expected return on PPB Group...................................................................4
Table 4 Calculation of monthly return on CIMB FTSE ASEAN 40 Malaysia...............................4
Table 5 Calculation of correlation between PPB Group & Genting Group....................................5
Table 6 Calculation of correlation between Genting Group & ETF...............................................5
Table 7 Calculation of correlation PPB Group and ETF.................................................................6
Table 8 Calculation of risk and return of portfolio 1.......................................................................7
Table 9 Calculation of return and risk of portfolio 2.......................................................................7
Table 10 Calculation of risk and return of portfolio 3.....................................................................8
Table 11 Calculation of return and risk of portfolio 4.....................................................................8
Table 12 Covariance matrix.............................................................................................................8

INTRODUCTION
Portfolio investment refers to the investment made by investor in different securities i.e.
Exchange traded fund, money market securities, fixed income securities, equity funds and others
with the aim of receiving target return. Thus, portfolio consists of different type of assets i.e.
equity includes ordinary stock and debt i.e. bonds, debentures, banknotes and others (Leung, S.L
and et.al., 2016). Investment in different securities usually involves both risk and return
therefore, it is essential for the investor to make appropriate decisions regarding their assets
allocation and others so as to manage portfolio risk and earn good return. The present report lay
emphasizes upon creation of an efficient portfolio comprising the stock of two Malaysian
companies named Genting Malaysia and PPB Group listed on FTSE Bursa Malaysia Index
KLCI. Moreover, an ETFA CIMB FTSE ASEAN 40 Malaysia also have been incorporated for
the portfolio construction.
Computation of risk and return of common stock & exchange traded fund
Companies selected for the portfolio creation
Companies Industry
Genting Malaysia Berhad Real Estate
PPB Group Conglomerate industry
CIMB FTSE ASEAN 40 Malaysia Exchange Traded fund (ETF)
Genting Malaysia Bhd is a public limited company which is founded in the year 1980. It
provides hospitality and leisure service to the consumers i.e. hotel accommodation, gaming,
entertainment and others. It has two operational segments one is leisure and hospitality and
another is properties. First is involved in delivering travel and tourism related services whereas
second segment is engaged in property investment, development and its management.
PPB Group Bhd is a conglomerate company which is listed on FTSE Bursa Malaysia
KLCI and engaged in food production, property investment, waste management, and agriculture
and property development functions.
ETFA CIMB FTSE ASEAN 40 Malaysia ETF is a composition of the market value of
the biggest 40 businesses listed on the Indonesia, Malaysia, Philippines Singapore & Thailand’s
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stock exchange. This stock has been selected because all these shows a rapid growth rate hence,
it is expected to earn good return on investment.
In the portfolio two firms are taken which are Genting Malaysia Berhad and PPB Group.
Former firm is operating in real estate sector and there is heavy optimism about its growth. In the
upcoming time period economic condition of nation will improve which may lead to increase in
people spending on homes. Malaysia is one of the developing economies and in upcoming time
period its growth rate is expected to grow. Thus, people consumption behaviour will also
improve and they may spend more money on building homes. Thus, on expectation of strong
growth rate relevant firm is taken in the portfolio. In the upcoming time period relevant firm may
generated good return on invested amount. It can be said that Genting Malaysia Berhad is the
best choice that is available to the investors. There are many other alternatives that are available
and one of best can be taken. On the basis of annual report it is identified that there is huge
growth potential in the business firm and due to this reason it is included in the portfolio.
PPB Group is the combination of multiple companies as it can be observed that it is the
one of large group in Malaysia. Corporations that are forming part of mentioned group are in
profit and it can be said that investment in mentioned group can generate good amount of return
for the business firm. Firm is on growth track and in upcoming time period also same may
increase at rapid pace. Thus, it is the best time to make investment in the mentioned corporation.
Firm have some expansion plans and same can generate strong amount of return for the business
firm. Thus, if investment is made in the firm huge capital appreciation can be observed.
Calculation of monthly return on Stock 1 and 2
Table 1 Calculation of monthly return of Genting Malaysia and PPB Group
Date
Genting Malaysia PPB Group
FTSE Bursa Malaysia
Index KLCI
Adj
Closing
price
Monthly
return
Adj
Closing
price
% change
(Monthly
return)
Adj Close
price
Monthl
y
return
of stock
1/31/2015 4.11 14.58 1781.26
2/28/2015 4.23 2.92% 15.38 5.49% 1821.21 2.24%
3/31/2015 4.3 1.65% 15.34 -0.26% 1830.78 0.53%
4/30/2015 4.29 -0.23% 15.28 -0.39% 1818.27 -0.68%
5/31/2015 4.11 -4.20% 14.66 -4.06% 1747.52 -3.89%
6/30/2015 4.27 3.89% 15.12 3.14% 1706.64 -2.34%
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7/31/2015 3.88 -9.13% 14.74 -2.51% 1723.14 0.97%
8/31/2015 4.01 3.35% 15.2 3.12% 1612.74 -6.41%
9/30/2015 4.3 7.23% 15.46 1.71% 1621.04 0.51%
10/31/2015 4.4 2.33% 15.8 2.20% 1665.71 2.76%
11/30/2015 4.38 -0.45% 15.9 0.63% 1672.16 0.39%
12/31/2015 4.47 2.05% 16.58 4.28% 1692.51 1.22%
1/31/2016 4.13 -7.61% 16 -3.50% 1667.8 -1.46%
2/29/2016 4.54 9.93% 16.70 4.38% 1654.75 -0.78%
3/31/2016 4.47 -1.54% 16.18 -3.11% 1717.58 3.80%
4/30/2016 4.41 -1.34% 16.32 0.87% 1672.72 -2.61%
5/31/2016 4.45 0.91% 16.5 1.10% 1626 -2.79%
6/30/2016 4.31 -3.15% 16 -3.03% 1654.08 1.73%
Average
return 0.39%
Average
return 0.59%
Average
return -0.40%
Standard
deviation 0.480
Standard
deviation 0.030149
Calculation of expected return
CAPM acronym for capital Assets Pricing model is helps to determine the expected rate
of return on the stock in which investor is considering to undertake any investment (Kock and
Georg Gemünden, 2016). It is an equilibrium model that assists investors to examine the
relationship between risk and return of various stocks.
E(r) = Risk free rate + beta (market return-risk free rate)
Genting Malaysia Berhad:
Risk-free rate: Coupon rate on 10-Year Malaysian Government Bond 4.00% (Bank
Negara Malaysia, 2017)
Beta: It is a volatility measure which helps to examine systematic risk by measuring the
risk of a security with subject to the change in market return (Magazzini and., et.al., 2016). It is
used in CAPM model and depicts the security’s expected return tendency with respect to the
change in stock return also called as beta coefficient computed through as follows:
Slope (Monthly return of Genting Malaysia Bhd, Monthly return of FTSE Bursa Malaysia KLCI)
Slope: -0.067
Annualized return: (1+Monthly return)^12 – 1
(1 + 0.39%)^12-1
= 4.77%
E(r) = Rf + beta (Rm-Rf)
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= 4% + -0.067 (4.77% - 4.00%)
= 3.95%
Table 2 Calculation of expected return on Genting Malaysia
Rf 4.00%
Beta -0.067034435
Average Daily Return 0.39%
Annualized return 4.77%
CAPM (Expected return) 3.95%
Std. Deviation 0.048062271
Table 3 Calculation of expected return on PPB Group
Rf 4.00%
Beta -0.053
Average Daily Return 0.59%
Annualized return (1+0.59%)^12-1 = 7.32%
CAPM (Expected return) 4% + -0.053(7.32% - 4.00%) = 3.82%
Std. Deviation 0.030149
Calculation of monthly return on CIMB FTSE Asean 40 Malaysia ETF
Table 4 Calculation of monthly return on CIMB FTSE ASEAN 40 Malaysia
Date Price % change (Monthly Return)
15-Jan 1.84 -
15-Feb 1.86 1.09%
15-Mar 1.88 1.08%
15-Apr 1.865 -0.80%
15-May 1.81 -2.95%
15-Jun 1.74 -3.87%
15-Jul 1.72 -1.15%
15-Aug 1.66 -3.49%
15-Sep 1.66 0.00%
15-Oct 1.77 6.63%
15-Nov 1.72 -2.82%
15-Dec 1.67 -2.91%
16-Jan 1.555 -6.89%
16-Feb 1.62 4.18%
16-Mar 1.655 2.16%
16-Apr 1.635 -1.21%
16-May 1.665 1.83%
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16-Jun 1.64 -1.50%
Average -0.62%
Annualized return (1+-0.62%)^12 – 1 = -7.24%
Standard deviation 0.032641223
Calculation of correlation between Genting Group and PPB Group
Table 5 Calculation of correlation between PPB Group & Genting Group
Date Genting Group PPB Group
1/31/2015 0 0
2/28/2015 2.92% 5.49%
3/31/2015 1.65% -0.26%
4/30/2015 -0.23% -0.39%
5/31/2015 -4.20% -4.06%
6/30/2015 3.89% 3.14%
7/31/2015 -9.13% -2.51%
8/31/2015 3.35% 3.12%
9/30/2015 7.23% 1.71%
10/31/2015 2.33% 2.20%
11/30/2015 -0.45% 0.63%
12/31/2015 2.05% 4.28%
1/31/2016 -7.61% -3.50%
2/29/2016 9.93% 4.38%
3/31/2016 -1.54% -3.11%
4/30/2016 -1.34% 0.87%
5/31/2016 0.91% 1.10%
6/30/2016 -3.15% -3.03%
Correlation 0.79632794
Covariance 0.00108602
Calculation of correlation between Genting Group and CIMB FTSE ASEAN 40 Malaysia
Table 6 Calculation of correlation between Genting Group & ETF
Date Genting Group CIMB FTSE ASEAN 40
1/31/2015 0 0
2/28/2015 2.92% 1.09%
3/31/2015 1.65% 1.08%
4/30/2015 -0.23% -0.80%
5/31/2015 -4.20% -2.95%
6/30/2015 3.89% -3.87%
7/31/2015 -9.13% -1.15%
8/31/2015 3.35% -3.49%
9/30/2015 7.23% 0.00%
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10/31/2015 2.33% 6.63%
11/30/2015 -0.45% -2.82%
12/31/2015 2.05% -2.91%
1/31/2016 -7.61% -6.89%
2/29/2016 9.93% 4.18%
3/31/2016 -1.54% 2.16%
4/30/2016 -1.34% -1.21%
5/31/2016 0.91% 1.83%
6/30/2016 -3.15% -1.50%
Correlation 0.45684169
Covariance 0.0006745
Calculation of correlation between PPB Group and CIMB FTSE ASEAN 40 Malaysia
Table 7 Calculation of correlation PPB Group and ETF
Date PPB Group CIMB FTSE ASEAN 40
1/31/2015 0.00% 0.00%
2/28/2015 5.49% 1.09%
3/31/2015 -0.26% 1.08%
4/30/2015 -0.39% -0.80%
5/31/2015 -4.06% -2.95%
6/30/2015 3.14% -3.87%
7/31/2015 -2.51% -1.15%
8/31/2015 3.12% -3.49%
9/30/2015 1.71% 0.00%
10/31/2015 2.20% 6.63%
11/30/2015 0.63% -2.82%
12/31/2015 4.28% -2.91%
1/31/2016 -3.50% -6.89%
2/29/2016 4.38% 4.18%
3/31/2016 -3.11% 2.16%
4/30/2016 0.87% -1.21%
5/31/2016 1.10% 1.83%
6/30/2016 -3.03% -1.50%
Correlation 0.289813644
Covariance 0.0002684
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PORTFOLIO CONSTRUCTION
Portfolio 1: Stock 1 and ETF
Before investing money in any portfolio, investor has to determine expected return as
well as risk of the portfolio. Examining risk and reward relationship is necessary so as to make
viable investment decisions for obtaining maximum return (Vukomanović, Young and Huynink,
2016). Expected return of portfolio measures the possible return that investor expects to gain
from the portfolio designed. However, on the other side, risk can be measured through standard
deviation (Sahin and et.al., 2017). It measures the volatility in the actual return around the
expected or possible return on the portfolio.
Table 8 Calculation of risk and return of portfolio 1
Retur
n Stdev Weight
Weighted return
(return*weight)
Genting 3.95% 0.048062 50% 1.97%
CIMB FSE Asean 40
ETF -7.24% 0.032641 50% -3.62%
100% Portfolio return = -1.65%
Portfolio standard deviation:
σp = √σ12 + w12 + σ22 + w22 +2* σ1* σ2*w1* w2*covar1*2
= √(0.048)^2*(0.50)^2 + (0.032)^2*(0.50)^2+2*0.50*0.50*0.000675*0.048062*0.032641
= 0.029
Portfolio 2: Stock 2 and ETF
Table 9 Calculation of return and risk of portfolio 2
Return Stdev Weight
Weighted
return
PPB 3.82% 0.030149 50% 1.91%
CIMB FSE Asean 40 ETF -7.24% 0.032641 50% -3.62%
100% -1.71%
Portfolio standard deviation
σp = √σ12 + w12 + σ22 + w22 +2* σ1* σ2*w1* w2*covar1*2
= √(0.030)^2*(0.50)^2+(0.032)^2*(0.50)^2+2*0.50*0.50*0.000268*0.3014*0.0326
= 0.0222
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Portfolio 3: Stock 1 and stock 2
Table 10 Calculation of risk and return of portfolio 3
Return Stdev
Equal
Weights
Weighted
return
Genting 3.95%
0.04806227
1 50% 1.97%
PPB 3.82%
0.03014897
1 50% 1.91%
100% 3.89%
Calculation of standard deviation of portfolio
σp = √σ12 + w12 + σ22 + w22 +2* σ1* σ2*w1* w2*covar1*2
= √(0.048)^2*(0.50)^2 + (0.030)^2*(0.50)^2+2*0.50*0.50*0.00109*0.0480*0.03014
= 0.02838
Portfolio 4: Stock 1, Stock 2 and ETF
Table 11 Calculation of return and risk of portfolio 4
Return Stdev
Weigh
t Weighted return
Genting 3.95%
0.04806227
1 34% 1.34%
PPB 3.82%
0.03014897
1 33% 1.26%
CIMB FSE Asean 40
ETF -7.24%
0.03264122
3 33% -2.39%
100%
Portfolio return =
0.21%
Table 12 Covariance matrix
Covariance matrix
Genting Malaysia
Berhad ppb Group
CIMB FTSE Asean 40
Malaysia
Genting Malaysia Berhad 0.002226999
0.0010688
97 0.00069611
ppb Group 0.001068897
0.0008218
85 0.000264116
CIMB FTSE Asean 40
Malaysia 0.00069611
0.0002641
16 0.001060342
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Portfolio return
Portfolio return (calculated above) 0.21%
Portfolio variance 0.0009
Standard deviation 0.030265621
Sharpe ratio 0.07091281
COMPARISON OF RISK OF THE PORTFOLIOS
In order to compare different portfolios it is necessary to do cohort analysis of risks
associated with underlying assets. It can be observed from the portfolio 1 that there are two
underlying assets namely stock and ETF. Overall standard deviation of portfolio is 0.029 which
is very low and it can be said that risk associated with portfolio is very low. On other hand,
return on same is -1.65%. It can be said that very low amount of return is earned on the invested
amount. In case of portfolio 2 it can be seen that again there are two assets namely PPB and
CIMB FSE ASEAN 40 ETF. In case of this portfolio standard deviation value is 0.0222 and
return earned on portfolio is -1.71%. Again there is low standard deviation and it reflects that
there is low risk on invested amount (König and Bernoth, 2016). There is low return on both
investments. It can be observed that return in case of PPB earned return percentage is 1.91%
which is very low. On other hand, it can be seen that in case of ETF return is -3.62% which is not
much negative. This reflects that returns are not deviating much from their mean value and due
to this reason standard deviation of portfolio is very low 0.02838. On comparison of portfolio 1
and 2 it can be said that there is very little difference in terms of risk between both portfolios
(Aiello and Gatti, 2017). Thus, one can pick any of the mentioned portfolio for investment
purpose. From assessment, it has been identified that Genting and PPB will offer 3.95% &
3.82% returns to the investors. For evaluating the return and level of variation equal weights are
assigned to the securities of each company such as 50%. In this, weighted return of Genting and
PPB implies for 1.97% & 1.91% significantly. This aspect shows that returns which will be
offered by the securities of each company are highly near to each other. Besides this, standard
deviation of stock 1 and 2 in the case of portfolio 3 implies for 0.05 & 0.03. By taking into
account such aspect it can be stated that in the near future return offered by the firm will not
deviate to the significant level. On the basis of such aspect, it can be stated that such concerned
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portfolio will offer suitable returns to the investors and thereby make value addition in their
money (Seifert and et.al., 2016).
The results pertaining to portfolio 4 presents that return which will be offered by stock 1,
2 and 3 is 3.95%, 3.82% & -7.24%. It exhibits that 3 stock of portfolio will offer negative return
which in turn places inverse impact on overall profitability aspect. Besides this, standard
deviation of all such three stocks lies within the range of 0.03 to 0.05. Thus, it can be presented
that there is less chances that stock 3 of portfolio will provide investors with positive returns.
CONCLUSION
From the report, it can be concluded that before constructing a portfolio, investor needs to
examine the risk and reward relationship on different underlying securities in the portfolio. It
helps investor to determine expected rate of return and the volatility by which actual return may
vary from the possible return. From the CAPM model, it is identified that out of both the
company’s stock, the expected rate of return is comparatively higher on Genting Malaysia to
3.95% whereas on PPB, it is determined to 3.82%. On the other side, ETF’s prices moved
downward therefore, depicts negative return of -7.24%. Out of different portfolio constructed, it
is founded that portfolio 3 comprising stock of both the companies only is founded as a better
choice for the investor because both these securities indicates favourable return and at equal
weight of 50%, it is expected to derive a return of 3.89% at a standard deviation of 0.028. In
contrast, portfolio 1st and 2nd depicts adverse return of 1.65% and 1.71%. However, comprising
both the stocks along with ETF, return is comparatively less to 0.1%. Thus, the results clearly
indicate that investor must invest capital in the shares of Genting Malaysia and PPB Group only
so as to get maximum return.
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REFERENCES
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in Innovation Portfolio Management. Journal of Product Innovation Management.
33(6).pp. 670-686.
König, P. and Bernoth, K., 2016. The Eurosystem's agreement on Net Financial Assets (ANFA):
Covert monetary financing or legitimate portfolio management?. DIW Economic
Bulletin.6 (12/13), pp.141-150.
Leung, S.L and et.al., 2016. International Association of Credit Portfolio Managers Principles
and Practices: 2015: Expanding Role of Credit Portfolio Management. Global Credit
Review. 6.pp.11-20.
Magazzini, L and., et.al 2016. Real Options and Incremental Search in Pharmaceutical R&D
Project Portfolio Management.Creativity and Innovation Management. 25(2).pp. 292-
302.
Sahin, O and et.al., 2017. Renewable hydropower generation as a co-benefit of balanced urban
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