Portfolio Management: Choosing Companies and Efficient Frontier

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Financial Market and Portfolio Management
Student’s Name
Institutional Affiliation

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Section 1
Background Information About the Companies and the Reason for Choosing Them
The companies that I may choose to include in my portfolio are BP Plc, BHP Billiton Plc,
Holders Technology Plc and Phoenix group holdings. First, BP Plc is a multinational oil and gas
company in London, England which was founded in 1908 as an Anglo-Persian oil company. The
company is the world's seventh-largest oil and gas producer and by market capitalization, it is
considered the sixth largest in the world. By 2017, the corporation had branches in over 70
countries worldwide and it produces 3.6 million barrels of oil daily. BP Plc is performing well
from the look of its financial statements since in 2017, the company's revenue increased to
$240.208 billion, its operating income increased to $9.474 billion, its net income rose to $3.389
billion, its total assets inclined to $276.515 billion and its total equity rose to $100.404 billion
(BP PLC, 2018, n.d.). Ultimately, the current share price of BP Plc is $575.69 and it pays a
dividend of $0.595. The primary reason for choosing this stock is because the oil and gas sector
is considered the most profitable to invest in.
Second, BHP Billiton Plc is a multinational mining, petroleum, and metals company in
Melbourne, Australia that is traded on the London Securities Exchange (LSE) with ticker symbol
BLT. The company was founded in 1885 as a result of a merger between BHP and Billiton.
Currently, it is ranked as the largest mining corporation in the world by market capitalization. Its
main products are iron ore, petroleum, coal, copper, nickel, natural gas, and uranium. Likewise,
BHP Billiton Plc has been performing well since, in 2017, the company achieved a revenue of
$38.285 billion, an operating income of $11.753 billion and a net income of $6.222 billion. Its
share price currently ranges at $1,731.50, and it paid a dividend of $55 as at 8th March 2018
(BHP Billiton PLC, 2018, n.d.). The main reason for choosing this stock is that it is a performing

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stock since its financial statements have been favorable. Besides, its stock price is still inclining
which was a factor I considered when choosing this stock.
Third, Holders Technology plc is a company that was incorporated in 1983 in the United
Kingdom to manufacture specialty laminates and materials for a printed circuit board (PCB)
manufactures and operates as a light emitting diode (LED) solutions provider to the lighting and
industrial markets. The company is traded on the LSE with ticker symbol HDT. When compared
to its competitors, it may not be the best but it has an average return. Ideally, the company is
performing well since it realized a revenue of $12.21 million and a net income of $59,000
(Holders Technology, 2018, n.d.). Ideally, its current share price is $43.50 and it pays a dividend
of $0.50. The primary reason for choosing this company is the fact that it has one of the lowest
stock prices and it has the possibility of inclining in the future. Besides, being in the technology
industry gives my portfolio an edge.
Lastly, Phoenix group holdings is a company in London, U.K. that was founded in 1857
by Henry Staunton with an aim of providing insurance services. The company is considered to be
the largest provider of insurance services in the United Kingdom which is evident by the fact that
it is grouped in FTSE 250 index. The firm has been performing well since in 2017, it achieved a
revenue of £6,089 billion and an operating income of £125 million. However, in that same year,
the company realized a net loss from its operations of -£27 million. Currently, Phoenix group
holdings have a share price of $775 and it pays a dividend of $50.60 (Phoenix Holdings Limited,
2018, n.d.). The main reason of choosing this company is that it is the leading company in the
insurance sector in the United Kingdom and despite its financials looking bad, it pays a high
dividend than many companies in the same industry.
The Daily Mean Return and Standard Deviations of Each Company

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From the analysis done in Excel, BP Plc has a daily mean return of $34.86 and a standard
deviation of $4.45, BHP Billiton Plc has a daily mean return of $37.48 and a standard deviation
of $6.50, Holders Technology Plc has a daily mean return of $66.49 and a standard deviation of
$11.20 and Phoenix Holdings Ltd has a daily mean return of $1887.93 and a standard deviation
of $59.07 (Aouni, Colapinto and La Torre, 2014, p.537).
Covariance and Correlation Between the Stocks
The covariance of the four company stocks is shown below.
BP BHP HK PHOE.TA
BP 19.79894
BHP 26.15578 42.29401
HK 38.05058 63.86046 125.4347
PHOE.TA 974.3224 1379.943 2218.915 213678
The correlation of the four company stocks is depicted in the table below.
BP BHP HK PHOE.TA
BP 1
BHP 0.903873 1
HK 0.806786 0.901942 1
PHOE.TA 0.624832 0.546608 0.430406 1
Correlation and covariance measure how random variables associate or differ from each
other. From the correlation table above, there is no correlation between BP Plc and the other
companies. Furthermore, there is no correlation between Phoenix Holdings Ltd with the other
companies (Beach and Orlov, 2007, p.148). A correlation of close to 1 would mean that the
company stocks have a close association with each other like it is evident between BP and BHP,
BP and HK, and BHP and HK. However, a correlation of close to zero or none would mean that
the company stocks differ from each other like what is evident between Holders Technology
Limited and Phoenix Holdings Ltd.