Report on Importance of Portfolio Management
Added on 2020-06-06
13 Pages3276 Words60 Views
Portfolio Management
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Question 1........................................................................................................................................1A) Constructing and drawing yield chart of curves................................................................1B) Shape of curves and net yield changes..............................................................................2C) Action from European Central Bank (ECB) caused to shift of curves..............................2D) Concentrate on holdings for better performance...............................................................2E) Evaluating various strategies having different returns......................................................2Question 2........................................................................................................................................3A) Computation of average annual return..............................................................................3B) Calculating standard deviation..........................................................................................4C) Correlation coefficient for the two assets .........................................................................5D) Explaining Sharpe ratio.....................................................................................................5E) Findings for the portfolio...................................................................................................6Question 3........................................................................................................................................6A) Fama decomposition of performance................................................................................6Question 4........................................................................................................................................7A) Different forms of Efficient Market Hypothesis...............................................................7CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONPortfolio management is required in order to assess risk associated with market securities.Present report deals with importance of portfolio management for investors. Moreover, it alsolists down yield charts of curves of bonds and outline the performance of the same. There arevarious actions taken by ECB bank that has caused shift in yield curves. Furthermore, variousstrategies consisting of different returns are also discussed in this report. Annual return onportfolio and standard deviation of the portfolio are calculated. Furthermore, correlationcoefficient is also computed that shows whether there is positive or negative correlation betweentwo variables. Sharpe ratio is also calculated for assessing adjusted risk free return on thesecurities. Moreover, Fama decomposition performance measure is carried out for evaluatingrisk associated with returns in the best possible manner and various components are discussed aswell. Furthermore, different forms of EMH for analysing share price at the end of month areexplained which help investors to assess performance of company and take structured decisions.Question 1A) Constructing and drawing yield chart of curvesYear2007 August2009 August3 month3.97%0.41%1 year4.07%0.78%2 year4.10%1.47%5 year4.16%2.73%7 year4.24%3.24%10 year4.33%3.73%20 year4.49%4.28%30 year4.55%4.31%1
B) Shape of curves and net yield changesThe shape of these curves are inverted, flat yield curve. Inverted shows that long-termbonds are likely to reduce in accordance to recession prevailing in economy and flat curveshows that long-term and effect of short-term bonds are likely to fall because of economicrecession. The yield curves provides effective way to evaluate bonds of different maturities ineffectual manner. This implies that as short-term bonds have low yields in comparison to long-term, yield curve slopes upwards from left to the right in the bottom. This is known is normalyield curve in the portfolio. Thus, these are three types of curves which help to assess yield onbonds of different maturities.C) Action from European Central Bank (ECB) caused to shift of curvesThe action from ECB has caused shift of curves shows that interest rates and monetarypolicies have been increased by bank leading to shift of both curves (Tiwari, Jena, Mitra andYoon, 2018). The US treasury yield curve are flattened from the past year as compared to presentscenario. The main reason behind flattening of curves is that monetary policies have been revisedby ECB bank which has caused shift in these curves. Furthermore, unconventional measures are23 month1 year2 year5 year7 year10 year20 year30 year00.010.010.020.020.030.030.040.040.050.052007 August2009 AugustIllustration 1: Yield chart
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
International Financial Markets and Institution | Q&Alg...
|15
|2749
|16