Portfolio Management Report - Faculty of Business and Law, FIN352

This report delves into the intricacies of portfolio management, beginning with the selection of four companies: 888 Holdings Plc, Aggreko Plc, AJ Bell Plc, and Ascential Plc, chosen based on their beta values and operational history. The report then explores portfolio theory, referencing Modern Portfolio Theory (MPT) and its application in constructing efficient portfolios. It discusses the efficient frontier, capital market line (CML), and optimal portfolio construction, emphasizing the trade-off between risk and return. The findings indicate that a combination of AJ Bell Plc and AO World Plc offers the highest return, though with increased risk, leading to a recommendation for a 60/40 investment split based on efficient frontier analysis. The report concludes by highlighting the role of both potential constraints and CAL in helping investors make decisions. The report makes recommendations based on the efficient frontier analysis, and suggests that the appropriate package includes a risk-free asset and a risk-free asset package. References from various sources are included to support the analysis.

Portfolio management report

Table of Contents
1. Choice of companies....................................................................................................................3
2. Portfolio theory............................................................................................................................3
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

1. Choice of companies
The company chosen for this assessment is 888 holdings Plc, Aggreko Plc, AJ Bell Plc, and
Ascential Plc. The reason behind choosing only these five companies lies on the risk strategy.
The Beta value of first two companies are higher than 1, while rest three companies have beta
value less than 0.6. These companies are running their operations for long duration and some of
these companies have high return while some have low returns. The variation in return will help
in making composition accordingly.
2. Portfolio theory
The Portfolio Assumption Today (MPT) is an assumption about how unsecured lenders can take
risks to extend the expected return based on a certain level of market risk. Harry Markowitz
spearheaded this idea in his "Portfolio Selection" article, which was published in the Financial
Journal in 1952. He was later awarded the Nobel Prize for his work on the portfolio idea.
The current notion of a portfolio argues that the risk and reward characteristics of a profit should
not be viewed in isolation, but should be weighed against what the firm means for the risk and
return of the overall portfolio. MPT shows that a lender can build a set of resources that increase
productivity for a given level of risk. Likewise, with an appropriate level of expected return, a
lender can develop a package with the least imaginable risk. Despite factual estimates such as
difference and connection, the presentation of a single campaign is less important than it means
for the entire portfolio. MPT recognizes lenders as risk averse, which means they are moving
towards a safer package towards a less secure one for a certain level of return. Obviously, risk
aversion means that most people should put assets in different asset classes.
Package risk is a controversial possibility of the variability of each resource and the relationships
of each pair of resources. To determine the risk of a four-resource package, financial support
requires all four resource variables and six link honors, as there are six dual resource
combinations with four structures. Despite the relationships between resources, the overall
package risk, or overall deviation, is less than what the total weight might determine.

The current portfolio concept allows lenders to build more efficient packages. All imaginary
combinations of existing assets can be plotted on a graph, with the portfolio risk at pin X and a
typical return from the Y hub. This plot eliminates the best records. For example, package A may
have an average yield of 8.5% and a standard deviation of 8%. Furthermore, it assumes that
Package B has an average yield of 8.5% and a standard deviation of 9.5%. Package A would be
considered more productive because it has a similar expected outcome but lower risk.
Perhaps the most recent study by MPT is that it evaluates rates according to the difference
against the risk of disadvantage. It is considered that there are two packages that have the same
level of contrast and an equally attractive result under the conventional package assumption.
Purses may have changed as a result of minor mishaps. On the other hand, the other may have
this variability due to unusual dynamite decay. Most financial supporters would go on to small,
persistent mishaps that would be easier to maintain. Today’s portfolio concept (PMPT) seeks to
develop conventional portfolio ideas by limiting the risk of disadvantage rather than
differentiation.
Effective Frontier
Effective desertification is the arrangement of a single portfolio that offers the highest expected
return for an identified level of risk or the lowest risk for a given level of expected return.
Packages in the desert are prone to problems because they do not adequately review the level of
risk. Portfolios that accumulate on one side of margins have problems because they have greater
risk for a specified return distance.
The efficient frontier graphically deals with tables that extend the yield for the expected risk. The
products are subject to the profit mixes that make up the package. General security bias is
different from risk. In a perfect world, financial support that aims to protect the portfolio offers
excellent results, however, the overall bias of which is lower than the normal bias of individual
defenses. The less synchronized the defenses (lower covariance), the smaller the general
deviation. Recognizing that this product upgrade combination is against the threat of a fertile
worldview, that package should settle across the fertile desert line.
An important conclusion was the idea that development was taking place due to the potential
margin span. The key is to find out how expansion improves the portfolio's risk / return image.

He also finds that new visits reduce the risk. The relationship is not simple. At the end of the day,
putting more risk on a package doesn't get the same amount of return. In general, there will be
greater levels of expansion in imaginative packs that include possible wilderness than in troubled
ones, which are usually not that different.
The key finding has a number of assumptions and conventional hypotheses that may not
adequately address reality. For example, one of the suspicions is that the return of resources
follows a normal circulation. As a general rule, defenses can occur with results (known as tail
risk) that exceed three normal deviations from the average in more than 0.3% of detected
features. Thus, the return of resources is said to follow leptokurtic release or follow appropriate
ownership.
Optimal portfolio
The appropriate package includes a no-risk asset and a risk-free asset package. The risk asset
package is appropriate at the point where CAL digs into the desert. This package is perfect
because the slope of the CAL is the highest, which means we get the best results for every unit of
extra risk.
Single facilities lie on one side within the desert, when short contracts are allowed (since
individual security tends to be marginalized when short contracts are not allowed). This also
reinforces the notion that enhanced portfolios lead to higher-yield portfolios and lower-than-
normal returns than a package that includes insecure securities).
Capital market line
Capital Market Line is a graphical representation of the large number of records that truly
combine risk and return. CML is an innovative concept that offers a unique combination of risk-
free assets and a market package. CML is better than Efficient Frontier in that it secures risky
resources with the risk-free resource.
Capital market theory seeks to illuminate the long-term development of capital markets using
one of several numerical models. The most commonly used model in Capital Market Theory is
the Capital Asset Pricing Model. Capital market theory seeks to evaluate research resources.

Lenders or investment managers who are trying to assess the risk and future returns in the market
on a regular basis use some of the following models.
Findings and recommendations
Based on the result it was found that AJ Bell Plc and AO world Plc are the two companies
having higher return among five selected companies. The efficient frontier result shows that at
the combination of 10% investment on AJ Bell Plc and 90% investment on AO World Plc will
give maximum return. But at this combination, the standard deviation is also high. This indicates
that this combination has higher return with high risk.
Based on efficient frontier it is recommended that 60% investment on AJ Bell Plc and 40%
investment on AO World Plc should be done. At this level, company will get return of 1.89%.
Another reason behind recommending this combination is high return at lower risk. As in other
combination; decreasing in the percentage investment on AJ Bell Plc will increase the return
with increase in risk. On the other hand, increasing in the percentage of AJ Bell Plc will decrease
the return with increase in risk.
Conclusion
Investors use both potential constraints and CAL to get a combination of risk and rewards based
on what they want. The best danger package is where the CAL digs to the extent possible. This
combination of resource weighting provides the best proportion of compensation, as CAL is the
best known bias. When creating records, financial backers often devise unsafe and risk-free
resources (for example, government attacks) to reduce the chances. A complete package is
identified as a combination of a dangerous resource package, with Rp return, and the risk-free
resource, with Rf return.

References
deLlano-Paz, F., Calvo-Silvosa, A., Antelo, S.I. and Soares, I., 2017. Energy planning and
modern portfolio theory: A review. Renewable and Sustainable Energy Reviews, 77, pp.636-651.
Zhang, S., Zhao, T. and Xie, B.C., 2018. What is the optimal power generation mix of China?
An empirical analysis using portfolio theory. Applied Energy, 229, pp.522-536.
deLlano-Paz, F., Calvo-Silvosa, A., Antelo, S.I. and Soares, I., 2017. Energy planning and
modern portfolio theory: A review. Renewable and Sustainable Energy Reviews, 77, pp.636-651.
Ando, A.W., Fraterrigo, J., Guntenspergen, G., Howlader, A., Mallory, M., Olker, J.H. and
Stickley, S., 2018. When portfolio theory can help environmental investment planning to reduce
climate risk to future environmental outcomes—and when it cannot. Conservation Letters, 11(6),
p.e12596.
Lee, S., Shin, S., Judi, D.R., McPherson, T. and Burian, S.J., 2019. Criticality analysis of a water
distribution system considering both economic consequences and hydraulic loss using modern
portfolio theory. Water, 11(6), p.1222.
Bossone, B., 2019. The portfolio theory of inflation and policy (in)
effectiveness. Economics, 13(1).