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(PDF) Sample Assignment on Portfolio Management

   

Added on  2021-05-30

9 Pages1845 Words228 Views
Portfolio Management

IntroductionIt is always advisable to an investor to invest in a basket of stocks rather than putting allmoney in one stock. Hence, an investor should formulate a portfolio with securities havingdifferent risk and return characteristics. With this, the investor gets advantages of riskdiversification. The risk of investment gets diluted and return gets optimized (Baker and English,2011). In this context, a report has been prepared here that presented an analysis of three stocksnamely Tesla, Amazon, and BHP Billiton listed on the New York Stock Exchange (NYSE). Thereport covers analysis of risk and return characteristics of these stocks along with a portfoliobeing formed with equal weights of all three stocks. The report explains the different between therisk and return of individual stocks and that of a portfolio. The findings lead to conclusion as tohow should an investor optimize the risk and return of his investments. Part-IThe average return in relation to stocks and the market index taking weekly prices overthe period of past 28 weeks has been calculated. Apart from this variance of stock returns andmarket index returns, co-variance between stocks and with market index and co-efficient ofcorrelation between stocks and with market index have also been computed. The summary ofresults is shown below:Arithmetic mean0.19%-0.58%1.37%-0.62%Geometric mean0.17%-0.74%1.29%-0.69%Variance0.05%0.31%0.17%0.15%

Co-varianceS&P 500TeslaAmazonBHP BillitonS&P 5001Tesla0.0358%1Amazon0.0527%0.0566%1BHP Billiton-0.0107%-0.0211%-0.0085%1Correlation coefficientsS&P 500TeslaAmazonBHP BillitonS&P 5001.00 Tesla28.7017% 1.00Amazon57.3012%25.2898%1.00 BHP Billiton-11.7096%-5.5918%-5.5918%1.00 From the figures presented above, it could be observed that arithmetic and geometricmeans of returns of stocks are showing negative weekly returns over the period except Amazon.However, the market index as a whole is earning positive return of 0.19%. This signifies that theoverall market in USA has performed good enough to generate positive returns for the investorsbut the stocks taken individually have generated losses. Recent downfall in the Tesla’s stock has been observed due to mainly due to crash offatal car model X and the company has also been slow in production of another model namelymodel 3. Tesla’s stock went down by 22.4% in March 2018 which is a record low (AutumnEII,2018)..

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