portfolio analysis selection; portfolio theory, return portfolio risk, efficient set of portfolios,...

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

TOPICPORTFOLIO ANALYSIS SELECTION; PORTFOLIO

THEORY, RETURN PORTFOLIO RISK, EFFICIENT SET OF PORTFOLIOS, OPTIMUM PORFOLIO.

CONTENTSPORTFOLIO MEANINGPHASES OF PORTFOLIOMARKOWITZ MODELMARKOWITZ MEAN VARIANCE MODELEFFICIENT FRONTIREEFFICIENT SET OF PORTFOLIOSETTING OF PORTFOLIODIVERSIFICATIONDIVERSIFICATION OF RISKOPYIMUM PORTFOLIOEXCEPTED RETURN ON PORTFOLIO

MEANING;PORTFOLIOIt is a collection or combination of financial

assets( shares, debentures, government securities)

It can also be called collection of physical asstets(gold,silver,,real estate etc).

Here, it is used for” investment purpose” and not for consumption.

PHASES OF PORTFOLIOSecurity analysisPortfolio analysisPortfolio selectionPortfolio revisionPortfolio revision

MARKOWITZ MODELModern portfolio theory or portfolio theory

was introduced by harry markowowiz with his paper portfolio selection .

The markowitz model describe a set of rigorous statistical procedures uesd to selest the optimal portfolio for wealth maximizing/ risk-averse investers.

The model is describing under the framework of a risk-return tradeoff graph.

MARKOWITZ MEAN-VARIANCE MODEL ASSUMPTION; the return on investment adequately

summarises the outcome of the investmentAll investers are risk-averse.Investors are assumed to be rational Return could be any suitable measure of

monetary inflowInvestors base their investment decision on

two criteria ;expected return and variance of return

EFFICIENT FRONTIERWHAT IT IS?HOW IT WORKS?WHY IT MATTERS?

DIAGRAM

EFFICIENT SET OF PORTFOLIOIT is the portfolio that offers the highest

excepted return for a given level of risk or one with the lowest level of risk for a excepted return and the line that connect all these efficient portfolios is efficient frontier.

GRAPH

SETTING UP OF PORTFOLIOthe portfolio manager will determine how to

structure the portfolio based on the restriction and guidelines in the portfolio prospectus.

Portfolio prospectus includes; fee investment objective limitation names of the portfolio manager

DIVERSIFICATION why diversify? Higher more consistent return Lower risk a diversified protfolio will hold a number

of securities Diversification is not having all ypur eggs

in one basket Losses in some securities should be offset

by gains in others

How to get the best diversification?Speard your portfolio among multiple

investment vehicles such as cash,stock,mutual fund.

Vary the risk in your securitiesVary your securities by industry

Diversification of riskTWO TYPES OF RISK;1. Systematic risk2. Unsystematic risk

OPTIMUM PORTFOLIOThis comes under the markowitz theory.it

states that the investors will act rationally, always making decision aimed at maximizing their return for their accepatable level of risk.

SELECTION OF OPTIMUM PORTFOLIOStep 1; use the markowitz portfolio selection

model to identify optimal combinationsStep 2; consider riskless borrowing and

lending possibilitiesStep 3; choose the final portfolio based on

your preference for return relatives to risk

EXCEPTED RETURN ON PORTFOLIO The excepted return on portfolio simply

means the weighted average – the excepted return on individual securities in the given portfolio

formula

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