Financial Market and Portfolio Management: Analysis and Insights

This report provides a comprehensive analysis of financial markets and portfolio management, focusing on key aspects such as company analysis, portfolio construction, and risk assessment. It begins with an introduction to financial markets and portfolio management, highlighting their importance in achieving strategic goals and maximizing returns on investment. The report includes an analysis of companies like Tesco, Sainsbury, Cadbury, and Bakkavor, calculating daily and annualized returns, variance, standard deviation, semi-deviation, skewness, kurtosis, and Value at Risk (VaR). Furthermore, it delves into the calculation of covariance and correlation between stocks, along with an assessment of Beta using the Capital Asset Pricing Model (CAPM) to estimate the mean return of each stock. The report also constructs a portfolio using two selected companies, identifies the minimum variance portfolio, and provides suggestions for the best-suited portfolio based on risk and return. Finally, it estimates measures such as the Treynor Ratio, Jensen's Alpha, Sharpe Ratio, Information Ratio, and M2 measures for the Minimum Variance Portfolio (MVP) and Maximum Sharpe Ratio (MSR). Desklib offers a wealth of similar solved assignments and study resources for students.

FINANCIAL
MARKET
AND
PORTFOLIO
MANAGEMENT

INTRODUCTION
It can be described as a process of choosing, prioritising and controlling plans, projects and
programmes undertaken by a company in relation with its strategic goals and objectives & its
capacity to deliver the desired results. The ultimate objective is to manage and implement
initiatives that would help in working and maintenance of organisation while maximizing return
on investment as well. They plan and apply investment policies and strategies that help to fulfil
client based objectives and construct & manage portfolio which help in buying and selling of
investments. There are many types of portfolio management such as active, non- discretionary,
passive and bottom line portfolios. It can be explained as a market that let people perform
functions related to trading of financial securities and derivatives at lower expense and
transaction cost. It can thus be explained through financial commodities such as stock, precious
metal and bonds. It in general refer to a place where buying and selling of important securities
occur. Some examples that best explains the term are bond market, stock market and good
market. It is referred to a place where buying and selling of securities take place on a larger scale
that incur higher amount of funds and money.
MAIN BODY
Section1: Analysis of Companies from LSC used to Construct Portfolio: -
(A) Introduction of Company along with following Calculations: -
 TESCO – It is a multinational grocery retailing business. It is headquartered in Welwyn
garden city, England. Tesco has diversified its operations in various areas such as books,
clothing, electronics, furniture, toys, petrol, software, telecom and internet services. It has
captured British market on a large scale. It has several outlets such as Tesco Express,

Tesco Extra, one stop and Tesco home plus. It has spread its wings in various countries
such as Turkey, Indonesia and South Korea to improve the level of revenue and profits.
 Sainsbury – It is the second largest chain of supermarkets and deals in the business of
groceries. It is headquartered in United Kingdom. It offers superior quality products at
low prices. It was a small convenience store which was later form a supermarket chain. It
has a greater opportunity because it fulfils the needs of all segments of customer. It offers
innovative products which helps to capture large market share. The competitors of
Sainsbury are Aldi, Lidl and Asda. It also offers its products in rural areas and various
remote locations.
 Cadbury – It is one of the best brands that deals in the confectionery. It is headquartered
in west London. It is popular for its dairy milk, the crème eggs and Roses selection box.
It held second position after Mars. It is having attractive packaging colour which give
aesthetic colour to its package. It offers Bournvita biscuits, Cadbury celebrations,
Cadbury Choco bakes and Cadbury cocoa.
 Bakkavor – It produce Fresh food in the UK. It has majority of the operations performed
in the country of US and China. It has priority of offering quality products which brings
satisfaction to the customers. It has monopoly in meals, salads, desserts and Pizza
&Bread.
Calculation of the following for the Four companies under consideration: -
 Daily and Annualized Returns: An annualised rate of return is a method of analysing
the amount of returns. It can be calculated either on daily or annual basis.
 Daily and Annualized Variance: It is a statistical measurement which is used by the
investor to know whether the investment is profitable or not. It is used to compare
relative performance of each asset.
 Daily and Annualized Standard Deviation: It is the square root of variance which is a
measure of dispersion. It shows the variation of computed values from the actual
mean. It uses mean as a measure to calculate the deviation.

 Daily and Annualized Semi Deviation: It is an alternative to the deviation. This tools
are used to evaluate risky investments.
 Skewness: In case of normal distribution curve, the mean, median and mode are
equal. When the value of mean is dispersed and it fall either towards left side or right
side. In that case, the skewness occurs which is also known as asymmetry. The value
of skewness can be positive, negative, zero or undefined.
 Kurtosis: It is a measure which tells the shape of the normal distribution curve. There
are three types of shapes in kurtosis: Leptokurtic, platykurtic and Mesokurtic. The
Mesokurtic is same as normal distribution curve, in this the central tendency
measures are equal.
 Value at Risk: It stands for value at risk that signifies the amount of losses in a firm,
portfolio or position of the enterprises. The different VAR are 1%, 5% and 10% used
in the report.
(B) Calculation of Covariance and Correlation of between the stocks along with comments on
the results obtained:
Covariance a statistical tool which is used to analyse the relationship between the
movement of two random variables. There are two types of covariance: positive
covariance and negative covariance. When change in the variables occurs in the same
directions, it is known as positive covariance and when variables change in the different
directions, it is known as negative covariance. Correlation shows the association between
two variables. The relationship is studied between independent variable and dependent

variable. It can be either positive correlation or negative correlation between the two
variables.
(C) Calculation of Beta for the company and using CAPM, estimate the mean return of each
stock:
 Comment on the beta calculated along with its impact on the portfolio:
Capital Asset Pricing Model is used to study the systematic risk and expected return for
each asset. It is known for computation of cost of equity. It is calculated by taking beta,
risk free rate of return and market risk for each security.
 Analysis on the company with its Valuation and actions to be suggested:
Section 2: Construction of Portfolio using two companies:
(A) Explanation on Two stocks which is worth investing as compare to others:
(B) Identification of Portfolio mix representing minimum variance portfolio along with risk and
return:
Minimum variance portfolio is a method of investment which helps in maximising returns and
minimise the risk.
(C) Selection of Portfolio on the basis of risk and return along with suggestions with respect of
best suited portfolio:

(D) Estimation of following measures for MVP and MSR:
 Treynors Ratio:
 Janson’s Alpha:
 Sharpe Ratio:
 Information Ratio:

 M2 Measures:
CONCLUSION

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