Report on Portfolio Management
Added on 2020-06-06
18 Pages4040 Words54 Views
Finance
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Portfolio Management1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................31. Calculating beta, systematic and unsystematic risk, sharpe and trenyor ratio of 10 stockspertaining to S&P 500 in spreadsheet \........................................................................................32. Selecting four companies by using Treynor Black methodology............................................43.Calculating expected monthly risk, return, Beta, Sharpe and Treynor ratios of optimizedportfolio.......................................................................................................................................44. Carry out a Fama decomposition of returns............................................................................55. Preparing report for providing information to the client.........................................................7CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................101.................................................................................................................................................112.................................................................................................................................................123.................................................................................................................................................154.................................................................................................................................................172
INTRODUCTION Portfolio management refers to the selection of right investment tools in appropriateproportion that helps in generating optimal returns. In the recent times, with the motive togenerate suitable return and balance or mitigate the risk level investors make focus on investingmoney in portfolio rather than individual security Thus, effective portfolio management is highlyrequired to minimize risk and maximize return within the specific time frame. In this context, byundertaking several tools and techniques investors or portfolio manager can manage securitiesmore effectually. The present report is based on the scenario of 10 different companiespertaining to S&P 500. In this, report will provide deeper insight about the specific andsystematic, beta, sharpe as well as treynor ratio of concerned securities. Besides this, it alsoentails the manner in which Treynor Black methodology assists is selecting suitable securities forbuilding optimal portfolio. It also depicts how Fama decomposition assists in calculating risk atdifferent levels and thereby aid in decision making. 1. Calculating beta, systematic and unsystematic risk, sharpe and trenyor ratio of 10 stockspertaining to S&P 500 in spreadsheet \Monthly outcomeParticularsS&P500returnGoodyearTire&RubberInternationalBusinessMachinesInternationalPaperMcDonaldsCorpNavistarInternationalMerck&Co3MProctor&GamblePhilipMorrisPrimericaBeta1.00.990.27-0.36-0.16-0.130.69-0.28-0.10-0.26-0.25Systematic risk3.42%3.42%0.92%-1.23%-0.54%-0.44%2.36%-0.98%-0.34%-0.88%-0.86%Specificrisk0.48%7.53%8.12%6.39%6.26%13.00%6.28%5.00%5.93%7.32%9.05%3
2. Selecting four companies by using Treynor Black methodologyTreynor Black methodology is highly undertaken by investors and analysts for an activeportfolio management. Hence, according to Treynor Black methodology, optimal portfolio isdeveloped by an analyst through doing alpha forecast. In this, considering the alpha value weightis assigned to the individual securities. Such model entails that when higher the alpha of securitythen high weight is given to the same. On the other side, lower weight is assigned to the volatilesecurities whose performances are highly influenced from firm specific news. Weight 6.00%3.50%7.00%4.00%1.00%2.00%23.50%23.50%18.82%10.68%100.00%GoodyearTire&RubberInternationalBusinessMachinesInternationalPaperMcDonaldsCorpNavistarInternationalMerck&Co3MProctor&GamblePhilipMorrisPrimericaAlpha0.54%1.15%1.45%1.90%0.69%1.23%1.42%2.07%1.93%3.41%Interpretation: Tabular presentation shows that alpha value of 5 companies, out of 10, ishigh such Mc-d, 3M, P&G, PM and Primerica is high in comparison to others. Besides this,through using solver function weights are assigned or given to the individual securities. Hence,by taking into consideration the weight or alpha value four securities have selected such as Mc-d,3M, P&G, PM and Primerica. Such optimal portfolio will prove to be beneficial for firm andhelps in meeting goals. 3.Calculating expected monthly risk, return, Beta, Sharpe and Treynor ratios of optimizedportfolio.Considering the Treynor Black methodology, optimized portfolio has created throughincluding 3M, P&G, Phillip Morris and Primerica. The below depicted table shows that risk andreturn associated with the portfolio of 4 securities account for .15% & 1.67% respectively. Inaddition to this, beta related to such portfolio is -.24 significantly. This aspect clearly exhibitsthat volatility risk associated with such securities are relatively lower over others. Thus, it can bedepicted that investor will get suitable return from investment through facing low risk. 4
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