BAFN204 Portfolio Management Report: Risk and Return Analysis

This report, prepared for a Portfolio Management assignment (BAFN204) at Peter Faber Business School, analyzes the risk and return of various stocks listed on the Australian Stock Exchange (ASX). The report begins with an assessment of assets, calculating average returns for Cochlear, Telstra, and ANZ Bank, with Telstra showing the highest return. However, the analysis acknowledges the impact of high and low values on the average. The report then outlines a three-asset portfolio with equal weights, discussing the expected portfolio return and its use as a basis for determining future stock values. The variance of the portfolio return is also discussed, highlighting the impact of covariance. The report concludes with a risk measure, the Sharpe Ratio, indicating Telstra's highest ratio, followed by ANZ and Cochlear. The report includes references to support its findings.

Running Head: BUSINESS ACCOUNTING 1
BUSINESS ACCOUNTING

Running Head: BUSINESS ACCOUNTING
Table of Contents
A. Assessment of Assets...............................................................................................................3
A. Solution....................................................................................................................................3
B. Risk Measure............................................................................................................................3
References........................................................................................................................................4

Running Head: BUSINESS ACCOUNTING
A. Assessment of Assets
The mean is the sum of the dataset divided by the overall number of the data set. The average
return of the Cochlear, Telstra and ANZ bank is 11.4%, 18.45% and 14.22%. From the overall
analysis it can be stated that the highest return is of Telstra. However, this can be incorrect and
could be misleading as in the table it can be seen that there are certain values which are of high
value as well as low value and which affects the average set (Almahdi and Yang, 2017).
The maximum as well as minimum return of the Cochlear, Telstra and ANZ bank are 0.0212,
0.0293 and 0.0159 and the minimum values are 0.0625, 0.090 and 0.135 respectively (Davies,
Kat and Lu, 2016).
A. Solution
Here is a three-asset portfolio which is being created by the equal weights assigned to each of the
stock where the expected portfolio return is. Though it is not considered as the assured and
authentic rate, however the same can be used to determine the future value of the stock and also
served as a basis, wherefrom, where the actual measure returns can be measured.
The portfolio return’s variance is a segment of the integral assets and the covariance among each
other. Positive covariance shows that the movement of the stock is together whereas the negative
stock moves in the reverse direction (Chandra, 2017).
B. Risk Measure
Sharpe Ratio is the ratio which is used to calculate the risk-adjusted return. It is the average
return which is gained in the excess of the rate per unit of total risk. The higher the ratio the

Running Head: BUSINESS ACCOUNTING
better the investment is going to be. In this scenario the Sharpe ratio of Telstra is highest at 0.90
followed by ANZ at 0.88 and Cochlear at 0.55 (Kaplanski, Levy, Veld and Veld-Merkoulova,
2016).

Running Head: BUSINESS ACCOUNTING
References
Almahdi, S. and Yang, S.Y., 2017. An adaptive portfolio trading system: A risk-return portfolio
optimization using recurrent reinforcement learning with expected maximum drawdown. Expert
Systems with Applications, 87, pp.267-279.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Davies, R.J., Kat, H.M. and Lu, S., 2016. Fund of hedge funds portfolio selection: A multiple-
objective approach. In Derivatives and Hedge Funds (pp. 45-71). Palgrave Macmillan, London.
Kaplanski, G., Levy, H., Veld, C. and Veld-Merkoulova, Y., 2016. Past returns and the perceived
Sharpe ratio. Journal of Economic Behavior & Organization, 123, pp.149-167.