Business Finance Project: Investment Analysis and Portfolio Management

This project provides a detailed analysis of investment strategies and portfolio construction within the realm of business finance. The study utilizes various financial tools and techniques, including mean, standard deviation, and beta, to evaluate stocks and construct diversified portfolios. The report examines the monthly return series of stocks and an index, constructing three distinct portfolios with varying weights assigned to different companies. The analysis includes calculating mean returns, standard deviations, and beta estimates for each portfolio, along with regression analysis to assess the relationship between the market index and individual stocks. The project also incorporates the Security Market Line (SML) and Capital Market Line (CML) to aid in investment decision-making. The findings highlight the performance of the market and six individual stocks, comparing the returns and risks associated with each portfolio. The report emphasizes the importance of using multiple methods for investment decisions and provides insights into the performance and volatility of different investment options. The project concludes with a discussion of the calculations and key findings, offering valuable insights into portfolio management and investment analysis.

BUSINESS FINANCE

EXECUTIVE SUMMARY
Investment is made by all sort of people in terms of income level but making prudent decisions
is very difficult task. In order to take perfect decision some tools and techniques need to be used.
In the present research study index return and firms returns are analyzed by using tools like
mean , standard deviation and beta. It is observed that security markert line is the one of the
important approach that help one in making correct decisions. By comparing requred rate of
return with market return it is identified whether investment must be made in specific security or
not. Beta is another tool that must be widely used in order to meausre risk and to make
decisions. Thus, investors must not rely on single approach as they must use multiple methods to
take investment decisions.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
REQUIRED.....................................................................................................................................1
(1)Monthly return series of stocks and index..............................................................................1
(2)Portolio construction...............................................................................................................1
(3) Mean return and standard deviation of stock, index and portfolio........................................2
(4) Regression analysis................................................................................................................3
(3) Beta estimates of portfolio...................................................................................................12
5 Combination line chart...........................................................................................................24
ANALYSIS....................................................................................................................................24
(1)Performance of market and six stocks..................................................................................24
(2) Comparison of portfolios.....................................................................................................25
(3) Relationship between sharpe ratio portfolio 3,2 and chart ploted in 5th point.....................25
(4) SML and CML.....................................................................................................................25
5 Discussion on calculations......................................................................................................26
CONCLUSION..............................................................................................................................26
REFERENCES..............................................................................................................................27
Figure 1Mean and standard deviation chart...................................................................................13
Figure 2Mean and beta chart.........................................................................................................13
Figure 3Mean and standard deviation chart...................................................................................14
Figure 4Mean and beta chart.........................................................................................................14
Figure 5Mean and standard deviation chart...................................................................................15
Figure 6Mean and beta chart.........................................................................................................15
Figure 7Mean and standard deviation chart...................................................................................16
Figure 8Mean and beta chart.........................................................................................................16
Figure 9Mean and standard deviation chart...................................................................................17

Figure 10Mean and beta chart.......................................................................................................17
Figure 11Mean and standard deviation chart.................................................................................18
Figure 12Mean and beta chart.......................................................................................................18
Figure 13Mean and standard deviation chart.................................................................................19
Figure 14Mean and beta chart.......................................................................................................19
Figure 15Mean and standard deviation chart.................................................................................20
Figure 16Mean and beta chart.......................................................................................................20
Figure 17Mean and standard deviation chart.................................................................................21
Figure 18Mean and beta chart.......................................................................................................21
Figure 19Mean and standard deviation chart.................................................................................22
Figure 20Mean and beta chart.......................................................................................................22
Figure 21Mean and standard deviation chart.................................................................................23
Figure 22Mean and beta chart.......................................................................................................23
Figure 23Combination chart..........................................................................................................24
Figure 24SML chart.......................................................................................................................25
Figure 25CML chart......................................................................................................................26
Table 1Return profile of index and shares.......................................................................................1
Table 2Portfolio 1............................................................................................................................1
Table 3Portfolio 2............................................................................................................................2
Table 4Portfolio 3............................................................................................................................2
Table 5Portfolio 1mean and standard deviation..............................................................................3
Table 6Portfolio 2 mean and standard deviation.............................................................................3
Table 7Portfolio 3 mean and standard deviation.............................................................................3
Table 8Calculation of beta.............................................................................................................12

INTRODUCTION
Investment is one of the important area that is related to every human being whether it
comes in upper or middle classs. There are number of tools and techniques that need to be used
in order to make prudent decisions. In current report, portfolios are created and varied tools are
used like beta and standard deviation, CML and SML for evaluating stocks and identifying
varied facts. In second part of report all results are discussed and in this way entire research work
is done.
REQUIRED
Introduction to firms ANZ: ANZ is also known by name Australia and New Zealand Banking group as it is one
of the largest bank of Australia in terms of market capitalization. Currently, firm is
offering number of products to its customers whether they are retail or HNI. Firm have its
own future plans and have good growth prospects. BHP: BHP is one of well known firm that is operating in mines, metals and petroleum
products. It is Australia largest mining company in terms of turnover. Presently, firm is
operating its business in number of nations of world and have good growth rate in
business. CSL: It is a company operating in biotechnology field. There are number of areas in this
field and CSL is operating streams from where good amount of cash flow can be
received. Firm product portfolio is wide and also provide good quality of services to
customers. FMG: It is largest iron ore company and is considered as one of the largest iron mineral
marker in the world. FMG is considered as greater in size in comparison to rivals Rio
Tinto and BHP. FMG have USP which make it different from rivals. WOW: It is a retail firm that is operating in both Australia and New Zelanad. Firm is
consistently opening new branches in foreign nations and is earning good amount of
revenue in the business. Thus, it can be said that with improvement in global economy
good profit will be earned by the firm.
(1)Monthly return series of stocks and index
Table 1Return profile of index and shares
Compan Return
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y
ANZ -0.0147
BHP
-
0.63789
CSL
1.83907
1
FMG
-
0.60218
TLS
0.89007
1
XAOA 0.30238
(2)Portolio construction
Table 2Portfolio 1
Portfolio 1
Weig
ht Value
ANZ 0.5 -0.0147
-
0.00735
BHP 0.5
-
0.63789
-
0.31894
CSL 0.5
1.83907
1
0.91953
5
FMG 0.5
-
0.60218
-
0.30109
TLS 0.5 0.89
0.44503
5
WOW 0.5
-
0.17783
-
0.08891
Return
0.64827
2
2 | P a g e

Mean STDEV
0
0.1
0.2
0.3
0.4
0.5
0.6
0.10804532988083
5
0.48454103502003
6
Chart Title
Figure 1Portfolio 1 mean and standard deviation
Table 3Portfolio 2
Compa
ny
Weig
ht
ANZ -0.08
-
0.0147
0.0011
76
BHP -0.19
-
0.6378
9
0.1211
98
CSL 0.67
1.8390
71
1.2321
77
FMG 0.14
-
0.6021
8
-
0.0843
1
TLS 0.88
0.8900
71
0.7832
62
WOW -0.42
-
0.1778
3
0.0746
88
Return
2.1281
96
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1 2
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
0.045
0.05
0.02504536555704
98
0.04502188619066
27
Chart Title
Figure 2Portoflio2 mean and standard deviation
Table 4Portfolio 3
Weig
ht Value
ANZ 0 -0.0147 0
BHP 0
-
0.63789 0
CSL 0.63
1.83907
1
1.15861
5
FMG 0
-
0.60218 0
TLS 0.36
0.89007
1
0.32042
6
WOW 0
-
0.17783 0
Return 1.47904
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1 2
0.01608831666834
97
0.03953822865183
99
Chart Title
Figure 3Portfolio 3 mean and standard deviation
(3) Mean return and standard deviation of stock, index and portfolio
Table 5Mean return, standard deviation and beta of stock, index and portfolio
ANZ BHP CSL FMG TLS
WO
W
Market
index
Portf
olio1
Portif
ilo2
Portfi
lo 3
Arithmetic
Mean
0.001
625
-
0.014
54
0.018
748
-
0.008
2
0.011
442
-
0.002
22
0.00505
0269
0.001
143
0.025
045
0.016
088
Standard
Deviation
0.060
461
0.066
046
0.049
425
0.117
906
0.045
415
0.045
415
0.03566
3482
0.040
409
0.045
022
0.039
538
BETA
1.386
885
1.279
471
0.581
192
1.699
34
0.450
972
0.593
045
0.998
484
0.421
032
0.533
792
(4) Regression analysis
ANZ
Regression Statistics
Multiple R
0.81807
344
R Square
0.66924
4153
Adjusted R
Square
0.66354
1466
Standard
Error
0.03536
6108
Observatio 60
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ns
ANOVA
df SS MS F
Significa
nce F
Regression 1
0.146784
295
0.146
784
117.3
559
1.47154
E-15
Residual 58
0.072544
173
0.001
251
Total 59
0.219328
468
Coeffici
ents
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
-
0.00537
919
0.004611
296
-
1.166
52
0.248
177
-
0.01460
9703
0.00385
1322
-
0.01460
9703
0.00385
1322
X Variable
1
1.38688
4938
0.128022
973
10.83
309
1.47E
-15
1.13061
9115
1.64315
076
1.13061
9115
1.64315
076
BHP
Regression Statistics
Multiple R
0.69089
0226
R Square
0.47732
9304
Adjusted R
Square
0.46831
7741
Standard
Error
0.04856
4715
Observatio
ns 60
ANOVA
df SS MS F
Signific
ance F
Regression 1
0.124927
957
0.124
928
52.96
853
9.99902
E-10
Residual 58
0.136794
832
0.002
359
Total 59
0.261722
789
Coeffici Standard t Stat P- Lower Upper Lower Upper
6 | P a g e

ents Error value 95% 95% 95.0% 95.0%
Intercept
-
0.02099
7985
0.006332
229
-
3.316
05
0.001
579
-
0.03367
3319
-
0.00832
2652
-
0.03367
3319
-
0.00832
2652
X Variable
1
1.27947
1023
0.175801
058
7.277
948
1E-
09
0.92756
6971
1.63137
5075
0.92756
6971
1.63137
5075
CSL
Regression Statistics
Multiple R
0.41936
9288
R Square
0.17587
0599
Adjusted R
Square
0.16166
1472
Standard
Error
0.04563
5882
Observatio
ns 60
ANOVA
df SS MS F
Significa
nce F
Regression 1
0.025777
377
0.025
777
12.37
73
0.00085
2145
Residual 58
0.120792
757
0.002
083
Total 59
0.146570
134
Coeffici
ents
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
0.01581
2573
0.005950
346
2.657
421
0.010
156
0.00390
1661
0.02772
3484
0.00390
1661
0.02772
3484
X Variable
1
0.58119
2499
0.165198
875
3.518
138
0.000
852
0.25051
1022
0.91187
3976
0.25051
1022
0.91187
3976
FMG
Regression Statistics
Multiple R
0.51400
816
R Square
0.26420
4388
7 | P a g e