PORTFOLIO

MANAGEMENT

ASSIGNMENT

MADE BY-
B.COM(Hons.)-VIC
 PORTFOLIO MANAGEMENT
The following industries have been chosen in the portfolio for the purpose of diversification
Banking, Automobile & Pharmaceutical.
(Figures inclusive of Capital and Revenue Returns)

ANNUAL ANNUAL ANNUAL ANNUAL

RETURN RETURN OF RETURN OF RETURN OF
OF CIPLA LARSEN & PUNJAB BSE%
LTD. % TOUBRO.% NATIONAL
BANK
LTD.%
2013 -3.49 21.07 -28.38 8.76

2014 55.29 10.79 74.17 38.18

2015 3.57 55.63 -47.19 -14.89

2016 -12.72 -35 -0.56 20.23

2017 6.69 92.6 47.21 25.12

Standard 22.79 48.8 41.54 16.32

deviation
Average 13.11 34.7 9.19 15.48
Return
Variance 0.0519 0.089 0.1725 0.0319

Beta 1.7539 0.30 0.1674 --

Covariance -0.1962 0.0013 0.0059 --

Correlation -0.1268 0.0514 2.1844 --

CALCULATION OF OPTIMAL PORTFOLIO

Calculating the weight of each security in the portfolio

Weight of security 1=S.D1/(S.D.1+S.D.2+S.D.3)
=22.79/(22.79+48.80+41.54)
=22.79/113.13
=.2014 = 20.50%
Weight of security 2=S.D2/(S.D.1+S.D.2+S.D.3)
= 48.8/(22.79+48.80+41.54)
=48.8/113.13
= 0.43 = 43.50%
Weight of security 3=S.D3/(S.D.1+S.D.2+S.D.3)
= 41.54/(22.79+48.80+41.54)
= 41.54/113.13
= 0.36 = 36%

Therefore, composition of the amount invested in individual security in a portfolio of

Rs 5,00,000 is as follows-

SECURITY WEIGHTAGE AMOUNT OF

INVESTMENT
CIPLA 20.50 102500
LARSEN & TOUBRO 43.50 217500

PUNJAB NATIONAL BANK 36 180000

TOTAL 100 500000

CALCULATION OF PORTFOLIO RETURNS

=W1R1+W2R2+W3R3
=.2050*13.11+.4350*34.7+.36*9.19
=2.68+15.09+3.30
=21.07%
Therefore, if Rs 5,00,000 are invested in the portfolio in the beginning of the calendar year
2013 then the ROI at the end of the calendar year 2017 will be 21.07%
Thus the amount received will be Rs 1,05,350.

CALCULATION OF PORTFOLIO RISK

S,D^2=(W1SD1)^2+(W2SD2)^2+(W3SD3)^2+2.W1.W2.W3.SD1.SD2.SD3.(Correlation of
portfolio and market return).
S.D^2=(.2050*22.79)^2+(.4350*48.8)^2+(.36*41.54)^2+2*.2050*.4350*.36*22.79*48.8*41
.54* .2279
SD^2=(4.67)^2+(21.228)^2+(14.95)^2+6760
SD^2=7456
SD=86.34

APPLICATION OF CAPM
Return of portfolio= Risk free retun +(Market return - Irf)*Beta
i.e. R=Irf+(rm-Irf)*Beta
Since,Irf for all the securities in the above portfolio is 0
Hence the formula applied will be-
R= Rm*(B1+B2+B3)
Thus, expected return aas per CAPM:
=15.48*(1.7539+.30+.1674)
=34.38%

This means that the undervalued as the actual return is less than the expected return.

CALCULATION OF BETA OF THE PORTFOLIO

Bp=(Correlation of the portfolio*Risk of the portfolio)/Market Risk

=(0.2279*86.34)/16.32

=1.20

PORTFOLIO EVALUATION

Sharpe’s Ratio-

=(Return of Portfolio-Irf)/Risk of Portfolio.

=(21.07-0)/86.34

=0.251

This portfolio performance is not upto mark as the Sharpe;s Ratio is not high.This mean that
the risk is higher than the return.

Treynor’s Ratio-

=(Return of portfolio-Irf)/Beta of portfolio

=21.07/1.20

=17.55