Corporate Finance Project: Risk Analysis and Portfolio Theory

This project report delves into corporate finance, specifically examining risk analysis and portfolio theory. The report begins with an analysis of market volatility using standard deviation, illustrated with an example from IRESS Limited, and includes regression statistics to quantify risk. The project then explores how the standard deviation of an asset influences investment returns, particularly in the context of a portfolio, and discusses the implications of risk-free assets. The report emphasizes the importance of understanding the relationship between asset weight, standard deviation, and investment returns. References include key works by Elton et al. (2009) and Rachev et al. (2008), which provide foundational concepts for the analysis of risk and portfolio management in corporate finance.

Running Head: Corporate finance
1
Project report: Corporate finance

Corporate finance
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Que 1)
Standard deviation is the basic concept of analyze the market volatility. It takes the
concern of normal distribution, dispersion statistics and market probability to analyze the risk
of the stock of a company. Following is the example of the standard deviation of IRESS
limited which depict that how easy it is for a comapny to analyze the risk factor of a
company’s stock (Elton et al, 2009).
SUMMARY
OUTPUT
Regression Statistics
Multiple R
0.1564
43
R Square
0.0244
75
Adjusted R
Square
0.0067
38
Standard
Error
0.0658
26
Observatio
ns 57
ANOVA
df SS MS F
Significa
nce F
Regression 1 0.005979
0.005
979
1.379
869
0.24518
4
Residual 55 0.238321
0.004
333
Total 56 0.244301
Coeffic
ients
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
0.0100
05 0.008877
1.127
028
0.264
624 -0.00779
0.0277
95
-
0.00779
0.02779
5
X Variable
1
0.2013
7 0.171426
1.174
678
0.245
184 -0.14217
0.5449
15
-
0.14217
0.54491
5
According to the above calculations, it has been analyzed that the risk of the company
is 20.13%.
Que 3)

Corporate finance
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According to the equation, it becomes easy for a comapny to analyze the total risk of
the comapny.
If one asset from the portfolio is risk free asset than the total there are more chances
for the asset to offer less risk as well as the associated return would also be less. The above
equation depict that the weight and the standard deviation of the asset decide about the
investment return. If the standard deviation of a comapny would be lower than the total risk
of the comapny would also be lower whereas the return would also be affected with it
(Rachev et al, 2008).

Corporate finance
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References:
Elton, Edwin J., Martin J. Gruber, Stephen J. Brown, and William N. Goetzmann. Modern
portfolio theory and investment analysis. John Wiley & Sons, 2009.
Rachev, Svetlozar, Sergio Ortobelli, Stoyan Stoyanov, Frank J. Fabozzi, and Almira Biglova.
"Desirable properties of an ideal risk measure in portfolio theory." International Journal of
Theoretical and Applied Finance 11, no. 01 (2008): 19-54.