Annualised Risk and Return

FM concession Q) Obtain daily, weekly and monthly remainder prices of the stock given to you. Get adjusted closing prices. occasional and weekly prices should be for one financial year. Monthly prices should be for 2 years. E. g. FY 2011-2012 and FY 2010-11. Compute annualized devote and guess. info ANNUALIZED RETURN ANNUALIZED RISK Weekly -16. 952 36. 449 Daily -16. 241 39. 347 Monthly -11. 21 30. 209 Comparing this with a suitable peer company, Company Annualized number Annualized chance JSP -11. 2154 30. 209 TATA stigma -4. 0020 47. 202 OBSERVATIONAs can be seen from the observations above, the stock which gives the maximum indemnification too comes with the maximum danger (TATA vane). So when it comes to selecting the stock, the by-line two cases can be considered a) maximal return - If you are a somebody who values maximum return and is ordain to take the risk for the same, go for TATA STEEL b) Minimum risk - If you are a risk averse person, go for JSP as the risk associated with it is less compared to TATA STEEL In either case, whether TATA STEEL or JSP, the annualized return is negative. Q) progress 10 different portfolios with a nonher(prenominal) company (Correl 0. 0) and compute return and risk for each portfolio. Identify the best portfolio. Construct the minimum variance portfolio. Company Correl JSP AND TATA STEEL 0. 89 JSP AND CUMMINS 0. 65 Initially we compared JSP and TATA STEEL. We order the Correl = 0. 89 which was greater than 0. 70. Next we compared JSP and Cummins and put in the Correl to be 0. 65. So we provide lead Cummins for making the portfolio. Portfolio render(%) Return(%) Percentage ofJSP Percentage of CUMMINS Portfolio Return JSP CUMMINS 1 -11. 21 14. 83 10% 90% 12. 2233 2 -11. 21 14. 3 20% 80% 9. 6196 3 -11. 21 14. 83 30% 70% 7. 0159 4 -11. 21 14. 83 40% 60% 4. 4122 5 -11. 21 14. 83 45% 55% 3. 11035 6 -11. 21 14. 83 50% 50% 1. 8085 7 -11. 21 14. 83 60% 40% -0. 795 2 8 -11. 21 14. 83 70% 30% -3. 3989 9 -11. 21 14. 83 80% 20% -6. 0026 10 -11. 21 14. 83 90% 10% -8. 6063 Min air division -11. 21 14. 83 36% 64% 5. 45368 Portfolio Risk(%) Risk(%) Percentage ofJSP Percentage of CUMMINS Covariance Portfolio Risk JSP CUMMINS 30. 21 27. 36 10% 90% 543. 6637905 6. 99497971 2 30. 21 27. 36 20% 80% 543. 6637905 9. 326639613 3 30. 21 27. 36 30% 70% 543. 6637905 10. 685008 4 30. 21 27. 36 40% 60% 543. 6637905 11. 42275403 5 30. 21 27. 36 45% 55% 543. 6637905 11. 59986156 6 30. 21 27. 36 50% 50% 543. 6637905 11. 65829952 7 30. 21 27. 36 60% 40% 543. 6637905 11. 42275403 8 30. 21 27. 36 70% 30% 543. 6637905 10. 685008 9 30. 21 27. 36 80% 20% 543. 6637905 9. 326639613 10 30. 21 27. 36 90% 10% 543. 637905 6. 99497971 Min Variance 30. 21 27. 36 36% 64% 543. 6637905 11. 19196754 From the above observation, for decisiveness regarding the best portfolio the following cases can be considered- a) Maximum Return - If on e wants to maximize the return, one should have a portfolio tittup consisting of 10% JSP and 90% Cummins b) Minimize Risk - A risk averse person should go for a portfolio mix consisting of 10% JSP and 90% Cummins c) Minimum Variance Ideally, as per the minimum variance rule, one should have 36% of JSP and 64% of Cummins as their portfolio mix.But in this case, it does not give the maximum return nor the least risk. Since maximum return as well as minimum risk is observed for a portfolio mix of 90% Cummins and 10% JSP, one should opt for that. tuitions * For studying the valuation of assets or securities, knowledge about the concepts of Risks and Returns are inwrought * Variance or standard refraction is the measure of the risk of returns * Combination of fivefold securities are called portfolios * Portfolio risk is not a weighted average risk as the securities included in the portfolio are associated with each other.Hence, portfolio risk also accounts for the covariance mingl ed with the returns of securities * Covariance is the product of standard deviation of psyche securities and their correlativity coefficient * The magnitude of the portfolio risk will depend on the correlation between the securities.The portfolio risk will be reach to the weighted risk of individual securities if the correlation coefficient is +1. 0. If correlation coefficient 1, the portfolio risk will be less than the weighted average risk. When the correlation coefficient = -1. 0, the portfolio risk becomes 0. Submitted By Group C14 Vaibhav Bhasin 2012182 Vinay Harinarayanan 2012184