INTRODUCTION

SECURITY ANALYSIS:

The term investment is a word of many meanings. The investment refers to

net additions to the capital stock of the community. Investment decision is a part of

our economic life. Everybody takes such decisions in different context and at

different times. The investor deploys money in specific investment channels with the

objective of better returns. The investor has various alternative investment avenues.

Savings are invested in assets depending on their risky. An intelligent investor with

skills of management can reduce the risk and maximize returns.

CONCEPT OF SECURITY ANALYSIS:

Security analysis refers to the analysis of trading securities. It analyses the

share price returns and the risk involved in the investment. Every investment

involves the risk and the expected return is related to risk. The security analysis will

help in understanding the behavior of security prices, market and decision making

for investment. If the analysis includes scrip the analysis of a market with various

securities it is known as macro picture of the behavior of the market. The entire

process of estimating return and risk of a security is known as security analysis.

This traditional investment analysis when applied to securities emphasizes the

projection of prices ad dividends are known as security analysis. It involves the

potential price of a share and future dividend stream is forecast, then discounted

back to the present value. Such value is called as ‘’intrinsic value’’. Then the

intrinsic value is compared with the securities market price, If the current market

price is lower than the intrinsic value, then purchase is recommended. Further, the

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security analysis is built around the idea that investors are concerned with two

principal properties inherent in securities, the return that can be expected from

holding a security, and risk that is achieved will be less than the return that was

expected.

Generally, the investors are interested primarily in selling a security for more than

they pay for it. The investor hopes to achieve a higher reward than simply placing

the money in a saving account. An investor who seeks reward that exceeds those

available on savings account forces the real risk. There is no return without risk. The

process of estimating return and risk for individual securities is known as ‘’security

analysis’’. Security analysis is the essence of valuation of financial instruments. The

value of financial asset depends upon their return and risk. The universal fact is that

everyone must recognize the risk component in risk situation

OBJECTIVES OF SECURITY ANALYSIS:

The following are the objectives of security analysis:

1. To estimate the risk and return related to a particular security.

2. To find out the intrinsic value of the security with a view to make a buy/sell

decision

3. To identify the under valued securities to buy or over value securities to sell.

4. To analyze the stock market trends to understand the stock market pattern

and behavior.

5. To forecast the future earning and dividends along with the price of the

securities.

6. To find out the key determinants of the intrinsic value.

7. To analyse and point out the position of economy industry and the company

with a view to select the possible company for investment.

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APPROACHES TO SECURITY ANALYSIS:

The security analysis aimed at identifying under securities to buy and over

valued securities to sell. It involves the entire process of estimating return and risk

for an individual security.

It is deeply rooted in fundamental concepts to measure the risk and return of

security. It emphasizes on the return and risk estimates rather than mere price and

dividend estimates. However, the return and risk estimates are dependent on share

prices and accompanying dividend stream.

Any forecast of security must necessarily consider the prospects of the

economy. The economic sets greatly influence the prospects of certain industries as

well as the psychological aspect of investing public.

The approaches for security analysis are broadly grouped into the following

categories.

1) Fundamental analysis

2) Technical analysis

3) Efficient market hypothesis.

1) FUNDAMENTAL ANALYSIS :

The first major analysis of securities analysis is the fundamental analysis. A

Fundamental analysis is a time honored value based approach depending. Upon a

careful assessment of the fundamental of an economy, industry and the company.

The fundamental analysis studies the general economic situation makes an

evaluation of an industry and finally does an in-depth analysis of both financial and

the non financials of the company of choice. The fundamental analysis is aimed at

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analyzing the various fundamentals or basic factors that effect the risk return of the

securities. The fundamental analysis involves the analysis of the following:

A) THE ECONOMIC ANALYSIS

B) THE INDUSTRY ANALYSIS

C) THE COMPANY ANALYSIS

A) THE ECONOMIC ANALYSIS:

In the economic analysis the investor has to analyse the economic factor to

forecast of the economy in order to identify the growth of the economy and its trend.

Further based on the economic analysis the investor will identify the industry groups

which are promising in the coming years in order to choose the best company in

such industry group. The economic analysis provides the investor to develop a

sound economic understand and be able to interpret the impact of important

economic indicators on the markets.

B) INDUSTRY ANALYSIS:

The object of the industry analysis is to assess the prospects of various

industrial groupings. The industry analysis helps to identify the industries with a

potential for future growth and to select companies from such industry to invest in

its securities. The industry analysis involves industry life cycle analysis, investment

implication, structure and characteristics of an industry.

C) THE COMPANY ANALYSIS:

Company analysis is the last leg in the economy, industry and company analysis

sequence. The company analysis is a study of variable that influence the future of a

firm both qualitatively and quantitatively. The purpose of company analysis is to

know the intrinsic value of a share of a company.

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2) THE TECHNICAL ANALYSIS :

As an approach to investment analysis, technical analysis is radically

different from fundamental analysis. The technical analysis is frequently used as a

supplement to fundamental analysis is, concerned with a critical study of the daily or

weekly price volume data of index comprising several shares. The technical analysis

analyses the buying and selling pressure, which govern the price trend. It helps the

investors to buy cheap and sell high, regardless of the type of company the investor

choose. The technical analysis complies a study of the market itself and not of the

various external factors which effect the market. According to technical analyst, all

relevant factors get gets reflected in the volume of the stock exchange transaction

and the level of the share prices

3) EFFICIENT MARKET HYPOTHSIS:

The efficient market hypothesis is also called as “RANDOM WALK

THEORY”. It is the extension of fundamental and technical analysis to equity

investment decisions. Efficient market theory says that no investors can out perform

the market for the simple reason that there are numerous knowledgeable analysts

and investors who would not allow the market price to deviate from the intrinsic

value due to their active buying and selling. Therefore the current market price

incorporates all fundamental information. According to “WILLIAM SHARPE” A

perfectly efficient market is one in which every security price equalizes market

value at all times. EUGEN FAMA expressed that “An efficient capital market is a

market that is efficient in processing in information. The prices of securities

observed at any time are based on “correct evaluation” of all information available

at that time. In an efficient market, prices fully reflect all available information.

The efficient market theory has the following three forms of efficiency:

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1. Weak form of efficiency:

2. Prices reflect in all information found in the record of past prices and

volumes.

3. Semi-strong- form of efficiency:

4. Prices reflect not only all information found in the records of past and

volumes but also other publicity available information.

5. Strong form of efficiency:

6. Prices reflect all available information, public as well as private.

CONCEPT OF PORTFOLIO MANAGEMENT:

Portfolio is the collection of financial or real assets such as equity

shares, debentures, bonds, treasury, bills and property etc. in a more general sense

the term portfolio may be used synonymous with the expression “collection of

assets” which can even include physical assets (gold, silver, real estate, etc).

Portfolio means a collection of combination of financial assets (securities) such as

shares, debentures, government securities. Portfolios are a combination of assets.

Portfolio will consist of collection of securities. What is to be borne in mind is that,

in portfolio context, assets are held for investment purposes and not for consumption

purposes. These holding are the result of individual preferences and decisions of the

holders regarding risk and return an a host of other considerations.

Portfolio is the investment of funds in different securities in which the total

risk of the portfolio is minimized while expecting maximum return from it. Portfolio

management takes the ingredients of risk and returns for individual securities and

considers the mixing of these securities. The portfolio management in total includes

the planning, super vision, forming rationalism and conservatism involved in the

collection of securities to meet investor’s objectives. In entails choosing the one best

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portfolio to suit the risk-return preferences of the investors. It also encompasses the

evaluation and revising the portfolio in view of changing risk, return and investors

risk preferences

STATEMENT OF THE PROBLEM

It is a service activity which is associated with providing quantitative

information primarily financial in nature and that which may needed for making

economic decisions regarding reasoned choice among different alternative course of

action. Financial management is a process of identifying management, accumulation

analysis, preparation, interpretation and communication of financial information to

plan evaluate and control. Financial management is that specialized function of

general management which is related to the procurement of finance and its effective

utilization for the achievement of the common goal of the organization.

Security Analysis refers to the analysis of trading securities. It analysis

the share price returns and the risk involved in the statement. The security analysis

aimed at identifying under valued securities to buy and over valued securities to sell.

With the reasonable review of the literature a thorough work in studying

the effective functioning of the Security analysis and Portfolio management in Inter-

connected Stock Exchange, is felt a necessary in the explained circumstances, it is

chosen for the studying in Inter-connected Stock Exchange, Hyderabad.

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NEED FOR THE STUDY :

The investor today is looking at investing in securities, which would

give him better returns that an ordinary savings bank account or fixed deposits

though at a certain amount of risk. Every person save money by post poning

consumption because future is uncertain. So, they have to search out for efficient

opportunities. Due to fast changing development in economic and industries

scenario improving the performance of the organization is essential. As a result

undertaking an academic study on Security Analysis and Portfolio Management will

be a welcome step. This study will be defiantly help full in achieving the

organization effectiveness.

OBJECTIVES:

1) To study the investment pattern and it’s related risks and returns.

2) To understand, analyze and select the best Portfolio.

3) To find out the intrinsic value of security with a view to make a buy/ sell

decision.

HYPOTHESIS:

1) Effective Security Analysis and Portfolio Management have a bearing on

company.

2) Effective Security Analysis and Portfolio Management contribute to increase

the efficiency of the company.

SCOPE:

Even though there are number of techniques for Portfolio analysis,

Markowitz Model has been choosing for the analysis. The scope of study has

been restricted to Hyderabad Stock Exchange. SEBI role and guidelines has been

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covered study, at large Indian stock market tendencies also has been considered

in the study.

METHODOLOGY

In attempting to pursue this research study topic qualitative as well as

quantitative approaches are undertaken.

Sources of Information:-

Both primary and secondary data were gathered and utilized for the study of

Security Analysis and Portfolio Management.

The statements cover the aspects of Security Analysis and Portfolio

Management the and associated issues. Personal interviews are taken with

respondents to strengthen the information.

Data collection tools, to obtain the data for the purpose of present study the

following tools used;

a) The data has been collected through HSE staff, the project guide and stock

brokers.

b) The data has been collected through journals, news papers and internet.

Data analysis are analyzed using basic parametric techniques such as percentages

and averages etc, where ever they are required.

LIMITATIONS OF THE STUDY:

1) Limited access to company information.

2) Detailed study of the topic was not possible due to limited size of the project.

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REVIEW OF LITERATURE

The securities available to an investor for investment are numerous and of

various types. The shares of over 7000 companies are listed in the stock exchanges

of the country. Traditionally, the securities were classified into ownership securities

such as equity shares and preference shares and creditorship security such as

debentures and Bonbs.Recently a number of new securities with innovative features

are being issued by companies to raise funds for their projects.

Securities analysis is the initial phase of the portfolio management process.

This step consists of examining the risk-return characteristics of individual

securities. A basic strategy in securities investment is to buy under priced securities

and sell over priced securities.

There are two alternative approaches to security analysis, namely,

fundamental analysis and technical analysis. They are based on different premises

and follow different techniques fundamental analysis, the order of the two

approaches, concentrates on the fundamental factors affecting the company such as

the EPS of the company the dividend pay-out ratio, the competition faced by the

company, the market share, quality of management,etc

According to this approach, the share price of a company is determined by

these fundamental factors. The fundamental analyst works out the true worth or

intrinsic value of a security based on its fundamentals: if the current market price is

higher than the intrinsic value, the share is set to be over priced and vice versa.

Fundamental analysis helps to identify fundamentally strong companies

whose share are worthy to be included in the investor’s portfolio.

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The alternative approach to security analysis is Technical analysis. The

technical analyst believes that share price movements are systematic and exhibit

certain consistent patterns. He there fore studies past movements in the prices of

shares to identify trends and patterns. He then tries to predict the future piece

movements. Technical analysis is an approach which concentrates on price

movements and ignores the fundamentals of the shares.

A more recent approach to security analysis is the efficient market

hypothesis according to the school of thought; the financial market is efficient in

pricing securities. The efficient market hypothesis holds the market prices

instantaneously and fully reflect all relevant available information. It means that the

market prices of securities will always equal its intrinsic value.

Efficient market hypothesis is a direct repudiation of both fundamental

analysis and technical analysis. An investor cannot consistently earn abnormal

returns by undertaking fundamental analysis or technical analysis. According to

efficient market hypothesis it is possible for an investor to earn normal returns by

normally choosing securities of a given risk level.

In literature Beinhocker say that evaluation provide a powerful and effective

recipe for salving problems and creating strategies in an predictable environment.

Fitness landscapes demonstrates how evolutionary search creates robustness and

adaptability through constant experimentation, parallel search , and mix of adaptive

walks and long jumps .by creating and cultivating evolving portfolios of strategies,

managers can make it more likely that there company will stay out of the strategy

wilderness and enjoy the high fitness peaks.

In view of Korczak adopts a different approach in the portfolio optimization

problem. He identified problems trading rules in stock market using genetic

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algorithms. Technical analysis assumes that future trends can be identified as a

more or less complicated function of past prices. Using a trade rule is a practical

way of identifying trends, which, in terms generate buying, and selling signals. on

the basis of past prices, each rule generates a signal: to sell, to hold, or to buy. To

ensure simplicity in the computing these decision.

In literature of Vieire, he is present a method for finding the optimal portfolio using

genetic algorithm matching the parameters defined by the analyst and the desired

beta of the portfolio. The analysis done by using functions that provides the most

important information on the financial health of a company. In this work, the

parameter used for the analysis is the following indices: current ration, quick ratio

and market value/ patrimony value. Binary codification is used to represent the

portfolio. The representation not only includes the share held in the portfolio, but

also it is proportion. The implementation was run for more than 4000 generations

and the fitness the value reached very close to the maximum.

In view of M.Sitaram Venugopal, S.Subramanian and U.S.Rao the

dynamic portfolio consisting of both debt and equity that has been selected for each

month for out performed the Sensex throughout the testing period. In addition, it

also dynamically switches from debt to equity during bull phase and vice versa in

bear phase automatically. thus the model is able to identify the portfolio of equity

and debt securities mix dynamically without human intervention and obtain

consistently good results in both phases. It could used by investors-both individual

and institutional for decision making.

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PROFILE OF INTER-CONNECTED STOCK EXCHANGE

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INTRODUCTION

Inter-connected stock exchange of India limited [ISE] has been promoted by 14 Regional

stock exchanges to provide cost-effective trading linkage/connectivity to all the members

of the participating Exchanges, with the objective of widening the market for the securities

listed on these Exchanges. ISE aims to address the needs of small companies and retail

investors with the guiding principle of optimizing the existing infrastructure and

harnessing the potential of regional markets, so as to transform these into a liquid and

vibrant market through the use of state-of-the-art technology and networking.

The participating Exchanges of ISE in all about 4500 stock brokers, out of

which more than 200 have been currently registered as traders on ISE. In order to leverage

its infrastructure and to expand its nationwide reach, ISE has also appointed around 450

Dealers across 70 cities other than the participating Exchange centers. These dealers are

administratively supported through the regional offices of ISE at Delhi [north], kolkata

[east], Coimbatore, Hyderabad [south] and Nagpur [central], besides Mumbai.

ISE has also floated a wholly-owned subsidiary, ISE securities and services

limited [ISS], which has taken up corporate membership of the National Stock Exchange

of India Ltd. [NSE] in both the Capital Market and Futures and Options segments and The

Stock Exchange, Mumbai In the Equities segment, so that the traders and dealers of ISE

can access other markets in addition to the ISE markets and their local market. ISE thus

provides the investors in smaller cities a one-stop solution for cost-effective and efficient

trading and settlement in securities.

With the objective of broad basing the range of its services, ISE has started

offering the full suite of DP facilities to its Traders, Dealers and their clients.

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OBJECTIVES:

1. Create a single integrated national level solution with access to multiple markets

for providing high cost-effective service to millions of investors across the country.

2. Create a liquid and vibrant national level market for all listed companies in general

and small capital companies in particular.

3. Optimally utilize the existing infrastructure and other resources of participating

Stock Exchanges, which are under-utilized now.

4. Provide a level playing field to small Traders and Dealers by offering an

opportunity to participate in a national markets having investment-oriented

business.

5. Reduce transaction cost.

6. Provide clearing and settlement facilities to the Traders and Dealers across the

Country at their doorstep in a decentralized mode.

7. Spread demat trading across the country

METHODOLOGY OF THE STUDY

OBJECTIVES OF THE STUDY:

The objectives of the study are as follows:

To know the on-line screen based trading system adopted by ISE and about its

communication facilities for the appropriate configuration to set network. This

would link the ISE to individual brokers/members.

To study about the back up measures with respect to primary communication

facilities, in order to achieve network availability and connectivity back-up

options.

Study about Clearing & Settlements in the stock exchanges for easy transfer and

error prone system. Also study about computerization demand process.

To know about the settlement procedure involved in ISE and also NSDL

operations.

Clearing defining each and every term of the stock exchange trading procedures.

SCOPE OF STUDY:

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The scope of the project is to study and know about Online Trading and

Clearing & Settlements dealt in Inter-Connected Stock Exchange.

By studying the Online Trading and Clearing & Settlements, a clear option of

dealing in stock exchange is been Understood. Unlike olden days the concept of trading

manually is been replaced for fast interaction of shares of shareholder. By this we can

access anywhere and know the present dealings in shares.

DATA COLLECTION METHODS

The data collection methods include both the primary and secondary collection methods.

Primary collection methods : This method includes the data collection from the

personal discussion with the authorized clerks and members of the exchange.

Secondary collection methods: The secondary collection methods includes the

lectures of the superintend of the department of market operations and so on., also

the data collected from the news, magazines of the ISE and different books issues

of this study

LIMITATIONS OF THE STUDY

The study confines to the past 2-3 years and present system of the trading procedure in the

ISE and the study is confined to the coverage of all the related issues in brief. The data is

collected from the primary and secondary sources and thus is subject to slight variation

than what the study includes in reality.

Hence accuracy and correctness can be measured only to the extend of what the sample

group has furnished.

SAILENT FEATURES

Network of intermediaries:

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As at the beginning of the financial year 2003-04, 548 intermediaries (207

Traders and 341 Dealers) are registered on ISE. A broad of members forms the bedrock

for any Exchange, and in this respect, ISE has a large pool of registered intermediaries

who can be tapped for any new line of business.

Robust Operational Systems:

The trading, settlement and funds transfer operations of ISE and ISS are

completely automated and state-of-the-art systems have been deployed. The

communication network of ISE, which has connectivity with over 400 trading members

and is spread across46 cities, is also used for supporting the operations of ISS. The trading

software and settlement software, as well as the electronic funds transfer arrangement

established with HDFC Bank and ICICI Bank, gives ISE and ISS the required operational

efficiency and flexibility to not only handle the secondary market functions effectively,

but also by leveraging them for new ventures.

Skilled and experienced manpower:

ISE and ISS have experienced and professional staff, who have wide

experience in Stock Exchanges/ capital market institutions, with in some cases, the

experience going up to nearly twenty years in this industry. The staff has the skill-set

required to perform a wide range of functions, depending upon the requirements from time

to time.

Aggressive pricing policy

The philosophy of ISE is to have an aggressive pricing policy for the various

products and services offered by it. The aim is to penetrate the retail market and strengthen

the position, so that a wide variety of products and services having appeal for the retail

market can be offered using a common distribution channel. The aggressive pricing policy

also ensures that the intermediaries have sufficient financial incentives for offering these

products and services to the end-clients.

Trading, Risk Management and Settlement Software Systems:

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The ORBIT (Online Regional Bourses Inter-connected Trading) and AXIS

(Automated Exchange Integrated Settlement) software developed on the Microsoft NT

platform, with consultancy assistance from Microsoft, are the most contemporary of the

trading and settlement software introduced in the country. The applications have been built

on a technology platform, which offers low cost of ownership, facilitates simple

maintenance and supports easy up gradation and enhancement. The soft wares are so

designed that the transaction processing capacity depends on the hardware used; capacity

can be added by just adding inexpensive hardware, without any additional software work.

Vibrant Subsidiary Operations:

ISS, the wholly owned subsidiary of ISE, is one of the biggest Exchange

subsidiaries in the country. On any given day, more than 250 registered intermediaries of

ISS traded from 46 cities across the length and breadth of the country.

1.   Prof. P. V. Narasimham Public Interest Director

2.   Shri V. Shankar Managing Director

3.   Dr. S. D. Israni Public Interest Director

4.   Dr. M. Y. Khan Public Interest Director

5.   Mr. P. J. Mathew Shareholder Director

6.   M. C. Rodrigues Shareholder Director

7.   Mr. M. K. Ananda Kumar Shareholder Director

8.   Mr. T.N.T Nayar Shareholder Director

9.   Mr. K. D. Gupta Shareholder Director

10.   Mr. V. R. Bhaskar Reddy Shareholder Director

11.   Mr. Jambu Kumar Jain Trading Member Director

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LIMITATIONS OF THE STUDY:

This study has been conducted purely to understand Portfolio Management for investors.

Construction of Portfolio is restricted to two companies based on Markowitz model.

Very few and randomly selected scripts / companies are analysed from BSE listings.

Data collection was strictly confined to secondary source. No primary data is associated with the project.

Detailed study of the topic was not possible due to limited size of the project.

There was a constraint with regard to time allocation for the research study i.e. for a period of two months.

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PORTFOLIO MANAGEMENT PROCESS

Portfolio management is a complex activity which may be broken down into

following steps;

1) Specification of investment objectives and constraints;

The typical objectives sought by investors are current income,

capital appreciation, and safety of principal. The relative importance of these

objectives should be specified. Further, the constraints arising from liquidity, tome

horizon, tax, and special circumstances must be identified.

2) choice of asset mix:

The most important decision in portfolio management is the

asset mix Decision. Very broadly, this is concerned with the proportions of ‘stocks’

(equity shares and units / shares of equity // oriented mutual funds) and ‘bonds’

(fixed income investment vechiles in general) in the portfolio. The appropriate

‘stock bond’ mix depends mainly on the risk tolerance and investment tolerance

horizon of the investor.

3) Formulation of portfolio strategy:

Once a certain asset mix is chosen, an appropriate portfolio

strategy has to be hammered out. Two broad choices are available: an active

portfolio strategy or a passive portfolio strategy. An active portfolio strategy strives

to earn superior risk-adjusted returns by resorting to market timing, or sector

rotation, or security selection, or some combination of these. A passive portfolio

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strategy, on the other hand involves holding a broadly diversified portfolio and

maintaining a pre-determined level of risk exposure.

4) Selection of securities

Generally, investors pursue an active stance with respect to

security selection. For stock selection, investors commonly go by fundamental

analysis and / or technical analysis. The factors that are considered in selecting

bonds (or fixed income instruments) are yield to maturity, credit rating, term to

maturity, tax shelter, and liquidity.

5) Portfolio execution:

This is the phase of portfolio management which is concerned with

implementing the portfolio plan by buying and/ or selling specified securities in

given amounts. Though often glossed over in portfolio management discussions, this

is an important practices step that has a bearing on investment results.

6) Portfolio revision:

The value of a portfolio as well as its composition the relative proportions of stock

and bond components may change as stocks and bonds fluctuate. Of course the

fluctutations of stocks is often the dominant factor underlying this change. In

response to such changes, periodic rebalancing of the portfolio is required. This

primarily involves a shift from stocks to bonds or vice versa. In addition, it may call

for sector rotation as well as security switches.

7) Performance evaluation:

The performance of a portfolio should be evaluated periodically. The key

dimensions of portfolio performance return are commensurate with its risk exposure.

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Such a review may provide useful feedback to improve the quality of the portfolio

management process on a continuing basis.

Sources of investment risk:

As an investor you are exposed to may variety of risks. Among these there are three

major ones: business risk, interest rate risk. While a detailed discussion of these is

woven in the entire book, at this juncture a brief idea may be given.

1) Business risk:

As a holder of corporate securities (equity shares or debentures), you are

exposed to the risk of poor business performance. This may be caused by a variety

of factors like heightened competition, emergence of new technologies,

development of substitute products, shifts in consumer preferences. Inadequate

supply of essential inputs, changes in government policies, and so on. Often, of

course, the principal factor may be inept and in component management. The poor

business performance definitely affects the interest of share holders, who have a

residual claim on the income and wealth of the firm. It can also affect the interest of

debenture holders if the ability of the firm to meet its interest and principal interest

payment obligation is impaired. In such a case, debenture holders face the prospect

of default risk.

2) Interest rate risk:

The changes in interest have a bearing on the welfare of the investors. As the

interest rate goes up., the market price of existing fixed income securities falls, and

vice versa. This happens because the buyer of a fixed income security would not buy

it at its par value of share value if its fixed interest rate ids lower than the prevailing

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rate interest rate on a similar security. For example, a debenture that has a face value

of Rs 100anda fixed rate of 12% will sell at discount if the interest rate moves up,

say, 12% to 14%. While changes in interest rate will have a direct bearing on the

prices of fixed income securities, they affect equity prices too, albeit some what

indirectly. The changes in the relative yields of debentures and equity shares

influence equity prices.

3) Market risk:

Even if the power of the corporate sector and the interest rate structure remain

more or less unchanged, prices of securities, equity shares in particular, tend to

fluctuates. While there can be several reasons for fluctuation, the main cause appears

to be the changing psychology of the investors. There are periods when investors

become bullish and their investments horizons lengthen. Investor optimism, which

may border on euphoria, during such periods drives share prices to great heights.

The buoyancy created in the wake of this development is pervasive, affecting all

most ass the shares. On the others hand, when a wave of pessimism (which often is

an exaggerated response to some unfavorable political or economic development)

sweeps the market, investors turn bearish and myopic prices of all most all equity

shares register as decline as fear and uncertainly pervade the market. The market

tends to move in cycles. As john says: “you need to get deeply in to your bones the

sense that any market, and certainly the stock market, moves in cycles, so that you

will infallibly wonderful bargains every few years, and have a chance to sell again at

ridiculously high prices a few years later.”

The cycles are caused by mass psychology. As john train explains:

“the ebb and flow of mass emotion quite regular: panic is followed by relief, and

relief by optimism; then comes enthusiasm, then euphoria and rapture, then the

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bubble bursts, and public feeling slides off again into concern, desperation ,and

finally a new panic.” One would expect large participation of institutions to dampen

the price fluctuations in the market. After all institutional investors have core

professional expertise to de fundamental analysis and greater financial resources to

act on fundamental analysis. However nothing of this kind has happened. On the

contrary, price fluctuation seen to have become wider after the arrival of the

institutional investors in larger numbers. Why? Perhaps the institutions and their

analysis have not displayed more presence and rationality than the general investing

public and have succumbed in equal measure to the temptation to the speculation.

As john Maynard Kenyes has argued, factors that contribute to the volatility of the

market are not likely to diminish when expert professionals possessing best

judgement and knowledge compete in the market place. Why? According to Kenyes,

even these people are concerned with speculation (the activity of forecasting the

psychology of the market) and not the enterprise (the activity of forecasting the

prospective yield of assets over their whole life).

PORTFOLIO THEORY THE BUSINESS OF DIVERSIFICATION:

Very broadly speaking the investment process consists of two types. The first task is

security analysis which focuses on assessing the risk and risk returns characteristic

of the available investment vehicles. The second task is portfolio selection, which

involves portfolio selection, which involves choosing the best portfolio from the set

of feasible portfolios.

We begin our discussion with the second task with the help of portfolio theory.

Portfolio theory, originally proposed by ‘’HARRY MARKOEITZ’’ in the 1950s,

was the first formal attempt to quantify the risk of aportfolio and develop a

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methodology for determining the optimal portfolio. Prior to the development of

portfolio theory, investors dealt with the concepts of return and risk somewhat

loosely. Intuitively smart investors knew the benefit of diversification which is

reflected in the traditional adage: ‘’do not put all your eggs in one basket. ‘’HARRY

MARKOWITY’’ was the first person to show quantitively why and how

diversification reduces risk. In recongnition of his seminal contribution in the field

was awarded the Nobel prize in Economic in 1990.

PORTFOLIO RETURNS:

Measuring actual portfolio return

The actual (or realized) return of a portfolio of assets over some specific time period

is calculated as follows:

Rp = W1R1+W2R2+.......Wn Rn

Where Rp = rate on return on portfolio

Ri = rate on return of assest I (I = 1,….n)

Wi = weight of assest i in the portfolio ( I =1,….n)

N = number of assests in the portfolio

Equation can be expressed succinctly as follows:

Rp = ∑ Wi Ri

Equation (2) says that return on a portfolio of assests is equal to the weighted

average of the returns on various assests on the portfolio.

25

n

i = 1

For example consider a portfolio consisting of five assests:

ASSET MARKET VALUE RATE OF RETURN

1 RS 4million 15%

2 RS 6million 12%

3 RS 8million -6%

4 RS 10million 9%

5 RS 12million 10%

40million

The weight of various assets are:

W1 = 4/40 =0.10 , W2 = 6/40 =0.15,

W3 = 8/40 = 0.20 ,W4 =10/40 =0.25 ,and

W5 = 12/40 =o.30

The portfolio return is:

R = 0.10 ( 15%) + 0.15 ( 12%) +0.20 (-6%) =0.25 (9%) =0.30(10%)

R = 7.35%

THE EXPECTED RETURN ON A PORTFOLIO OF RISKY ASSETS

In portfolio analysis we often want to know the expected ( or anticipated) return

on a portfolio of risky assets. The expected return on portfolio is:

E(Rp) = W1E( R1) + W2 E (R2) + ……….. +WnE (Rn)

Where E(Rp) = Expected return on portfolio

Wi = weigh of assest I in the portfolio (I =1,….n)

E(Ri) = expected return on asset I ( i= 1,….n)

26

PORTFOLIO RISK:

.

Risk of a two asset portfolio:

Recall that the variance of an individual asset ‘s risk is defined as :

Var( Ri ) = ∑ [ R is – E( Ri)]2 Ps

The variance of the return on a portfolio consisting of two assets is slightly more

difficult to calculate. It depends not only on the variance of the returns of the two

assests but also on the covariance of the returns of the two assests

Var(Rp) = w12 var(R1) + w22 Var(R2) + 2W1W2 Cov (R1R2)

Where Var (Rp) = Variance of the Port polio return,

W1W2 = Weights of assets 1 & 2 in the Port polio,

var(R1),Var(R2) = Variance of the returns on assets 1 and 2,

Cov (R1, R2)= Covariance of the returns on the assets 1 and 2,

In the words the above equation says that the variance of the return on a 2-

asset portfolio is the sum of the weighted variances of the two assets plus the

weighted covariance between the two assets.

Covariance:

The covariance term in the above equation term reflects the degree to which

the returns of the two assets vary or change together. A positive covariance means

that the returns of the two assets move in the same direction where as a negative

27

S = 1

n

covariance implies that the returns of the two assets move on the opposite direction.

The covariance between any two assets I and j is calculated as follows.

Cov (Ri, Rj) = P1 [Ri1 – E (Ri)] [R – E(R j)]

+ P2 [Ri2 – E (Ri)] [R – E(R j)]

+ …….

+ Pn [Rin – E (Ri)] [R – E(R j)].

Where P1, P2, P3,… Pn = Probabilities associated with states 1,…n,

Ri1, Ri2 … Rin = Return on asset I in state 1,…n,

R j1, R j2 … R jn = Return on assets J in states 1…n

E (Ri), E (Rj) = Expected returns on assets I and J,

Example: the returns on assets 1 and 2 under the five possible states nature

are given below

State of Nature Probability Return on asset 1 Return on assets 2

1 0.10 -10 5

2 0.30 15 12

3 0.30 18 19

4 0.20 22 15

5 0.10 27 12

The expected return on asset 1 is:

E(R1) = 0.10 (-10%) + 0.30 (18%) + 0.20 (22%) + 0.10( 27%) = 16%

The expected return on assets 2 is:

E(R2) = 0.10 (15%) + 0.30 ( 12%) + 0.30 (19%) + 0.20 (15%) + 0.10 (12%) = 14%

28

The covariance between the returns on assets 1 and 2 calculated below:

State of

NatureProbability

Return on

asset 1

Deviation of

the return on

asset 1 from

its mean

Return on

asset 2

Deviation of

the return on

asset 2 from

its mean

Product of the

deviations

times

probability

1 2 3 4 5 6 (2)(4)(6)

1

2

3

4

5

0.10

0.30

0.30

0.20

0.10

-10%

15%

18%

22%

27%

-26%

-1%

2%

6%

11%

5%

12%

19%

15%

12%

-9%

-2%

5%

1%

-2%

23.4

0.6

3.0

1.2

-2.2

sum=26.0

Thus the covariance between the returns on the two assets is 26.0

Relation between covariance and correlation:

Covariance correlation are conceptually analogous in the sense that both of them

reflect the degree of comovement between two variables. Mathematically , they are

related as follows:

Cov (Ri, Rj)

Where cor(Ri, Ri) =correlation coefficient between the returns on assets I and j

Cov (Ri,Rj) = covariance between the returns on assets I and j

σ (Ri), σ (Rj) = standard deviation of the returns

Thus the correlation coefficient can vary between -1.0 and +1.10. A value of -1.0

mean perfect negative correlation or perfect comovement in the opposite direction; a

value of 0 means no correlations of comovement whatsoever; a value of -1.0 means

29

σ(Ri) σ (Rj)

perfect correlation or perfect comovement in the same direction. The exhibit

portrays graphically various types of correlation relationships.

30

31

32

33

Notice that in the table there are n variance terms (the diagonal terms) and n(n-1)

covariance terms (the non-diagonal terms). If n is just two, there are two variance

terms. However , as n increases, the number of covariance terms is much larger than

the number of variance terms. For example, when n is 10, there are 10 (that is

n)variance terms. Hence the variance of a well-diversified portfolio is largely

determined by the covariance terms. If covariance terms are likely to be negative, it

may be possible to grid of risk almost wholly by restoring to diversification.

Unfortunately, securities prices tend to move together. This means that most

covariance terms are positive. Hence, irrespective of how widely diversified a

portfolio is, its risk does not fall below a certain level.

Dominance of covariance:

As the number of securities included in a portfolio increases, the important of risk of

each individual security decreases where as the significance of the covariance

relation ship increases, to understand this, let us look at the equation for the variance

of the portfolio return:

Var(Rp) = ∑ Wi2 var(Ri) +∑ ∑ Wi Wj cov(RiRj)

(i≠j)

If a valve diversification strategy is followed w = 1/n under such a strategy

Var(Rp) = 1/n ∑ 1/n var(Ri) +∑ ∑ 1/n2 cov(Ri Rj)

34

i = 1

n

i = 1

n

j = 1

n

i = 1

n n n

i = 1 j = 1

The range variation term and the average covariance term may be expressed as

follows:

Var = 1/n ∑ var(Ri)

Cov = 1/n(n-1) ∑ ∑ Cov (Ri, Rj)

Hence

Var (R) = 1/n Var + n-1/n cov

As n increases, the first term tends to become zero and the second term looms large.

Put differently, the importance of the variance term diminishes where as the

importance of the covariance term increases.

Optimal portfolio:

Before we discuss the procedure prescribed by Markowiz for selecting the optimal

portfolio, let us review the key assumptions made by markowitz about asset

selection behaviour.

Investors decisions are based on only two parameters, viz . the expected

return and variance.

Investors are risk averse. This means that investors when investors are faced

with two investments with the same expected return but with different risks,

they will prefer the one with the lower risk.

Investors seek to achieve the higest expected return at a given level of risk.

Investors have identical expectations about expected return, variances, and

covariances for all risky assets.

35

i = 1

n

i = 1 j = 1

n n

Investors have a common one-period investment horizon.

The procedure developed by markowitz for choosing the optimal portfolio of

risky assets consists of three steps:

1) delineate the set of efficient portfolio.

2) specify the risk – return indifference curves.

3) choose the optimal portfolio.

Efficient portfolios:

Suppose an investor is evaluating two stocks A and B for investment stock A has an

expected return of 15 percent and a standard deviation of 10 percent.

Stock B has an expected return of 20 percent and a standard of 25 percent. The

coefficient of correlation in the returns of A and B is 0.4

He can combine stocks A and B in a portfolio in a number of ways by simply

changing the proportions of his funds allocates to them. Some of the options

available to him are shown below.

Port polioProportion ofA

WA

Proportion of

BWB

Expectedreturn

E(Rp) %

StandardDeviation

σp %

1 1.00 0.00 15 10

2 0.75 0.25 16.25 11.25

3 0.50 0.50 17.50 15.21

4 0.25 0.75 18.75 19.88

5 0.00 1.00 20.00 25.00

36

The five options described above are plotted graphically as shown. If just two stocks

offer the investor with so many options, imagine the range of possibilities open to

him when he invests in a number of different securities. Exhibits shows the

innumerable portfolio options available to the investor. The collection of all possible

portfolio options represented by the broken – egg shaped region is referred to as the

feasible region.

Expected Returns, E(Rp)

Risk, σp

20%

15%

10%

05%

20%

15%

10%

37

The investor need not, however feel unduly overwhelmed by the belwildering range

of possibilities shown in the exhibit because what really matters to him is the north

west of the feasible range defined by the thick darkline. Referred to as the efficient

frontier, this boundary contains all the efficient portfolio options available to him.

It may be useful to clarify here what exactly a portfolio is. A portfolio is efficient if

(and only if) there is no alternative with

38

i. the same E(Rp) and a lower σ p , or

ii. the same σ p and a higher E(Rp), or

iii. a higher E(Rp) and a lower σ p.

Thus in exhibit while all the available portfolio are contained in the region

AFXMNO, only the portfolio which lie along the boundary AFX are efficient. AFX

represents the efficient frontier. All the other portfolios are inefficient. A portfolio

like z is inefficient because portfolio like B and D, among others, dominate it. The

efficient frontier is the same for all the investors because portfolio theory is based on

the assumption that investors have homogenous expectations

We have merely defined what is meant by set of efficient portfolios. How

can this actually obtained from the innumerable from the innumerable portfolio

possibilities that lie before the investors ? the set of efficient portfolios may be

determined with the help of graphical analysis, or calculus analysis, or quadratics

programming analysis, the major advantage of graphical analysis is that it is easier

to grasp. Its advantage is hat it cannot handle

Portfolios containing more than three securities. Mathematical analysis can grapple

with the n- dimensional space. However, the calculus method is not capable of

handling constraints in the form of inequalities Quadratic programming analysis is

the most versatile of all the three approaches. It can handle any number of securities

and cope with inequalities as well. For all practical, the quadratic programming

approach is the most useful approach.

Expected

Return, E(Rp)

39

RISK RETURN INDIFFERENCE CURVES:

Once the efficient frontier is delineated, the next question is: What is the optimal

portfolio for the investor? To determine the optimal portfolio on the efficient

portfolio on the efficient frontier, the investor’s risk returns trade off must be

known. Exhibit represents the to illustrative indifference curves which reflect risk

and return tradeoff functions note that all points lying on an indifference curve

provide the same level of satisfaction. The indifference curves Ip and Iq represents

the risk return tradeoffs of two hypothetical investors, P and Q both P and Q like

most investors are risk averse. They want higher returns to bear more risk. Q is how

ever more risk averse than P Q wants a higher expected return for bearing a given

amount of risk as compared to P. In general, the steeper the slope of the indifference

curve the greater the degree of risk aversion.

40

Expected returns

Each person has a map of indifference curves. Exhibit shows the indifference

map for P .in this figure, four risk-return indifference curves, Ip1,Ip2,Ip and Ip4 are

shown. All the points lying on a given indifference curve offer the same level of

satisfaction. For example, points A and B, which lie on the indifference curve Ip1

offer the same level of satisfaction; likewise, points R and S, which lie on the

indifference curve Ip2 represents a higher level of satisfaction as compared to the

indifference curve Ip1,the indifference curve Ip3 represents a higher level of

satisfaction when compared to the indifference curve Ip4 and so on.

Optimal portfolio:

Given the efficient frontier and the risk-return indifference curves, the optimal

portfolio is found at the point of tangency between the efficient frontier and a utility

indifference curve. In exhibit two investors P and Q, confronted the same efficient

frontier, but having having different utility indifferences curves (Ip1,Ip2,and Ip3 for

P and Iq1,Iq2, and Iq3 for Q )are shown to achieve their highest utility indifference

curves ( Ip1,Ip2, and Ip3 for P and Iq1,Iq2, and Iq3 for Q ) are shown to achieve

their highest utility at points P* and Q* respectively.

Expected return

41

Optimal portfolio with lending and borrowing:

Let us introduce yet another opportunity. Suppose that the investor can also

lend and borrow money at a risk free rate of R percent as shown in the exhibit. If he

lends a portion of his funds at Rf and invests the balance in S (S is the point of the

efficient frontier of risky portfolios where the straight line emanating from R is

tangential to the efficient frontier of risky portfolios), he can obtain any combination

of risk and return along the line that connects Rf and S further, if he borrows some

more money and invests it along with his own funds, he can reach a point G, beyond

S, as shown in the exhibit. Thus, with the opportunity of lending and borrowing, the

efficient frontier changes. It is no longer AFX. Rather, it becomes Rf SG because

42

RfSG which is superior to the point on AGX> For example, compared to C on AFX,

D on RfSG offers a higher expected return for the same standard deviation, likewise,

compared to Y on AFX, Z on RfSG offers the same expected return with a lower

standard deviation: and so on.

Since RfSG dominates AFX, every investor would do well to choose some

combination of R and S a conservative investor may choose a point like u, where as

an aggressive investor may choose a point like V. However, note that both investors

choose some combination of Rf and S. While the

Conservative investor weighs R more in his portfolio, the aggressive investor weighs

S more in his portfolio (in fact, in his portfolio, the weight assigned to Rf is negative

and that assigned to S is more than 1).

43

Thus, the task of portfolio selection can be separated in to two steps:

a) identification of, the optimal portfolio of risky securities.

b) Choice of combination of R and S depending one’s risk attitude. This is the

import of the celebrated separation theorem, first enunciated by James Tobin, a

Nobel laureate in Economics.

Portfolio management frame work

Selection of asset mix:

In your scheme of investments, you should accord top priority to a residential cover.

In addition, you must maintain a comfortable liquid balance in a convenient form to

44

meet expected and unexpected expenses in the short run. Once these are adequately

provided for, your asset mix decision in concerned mainly with financial assets

which may be divided into broad categories, via stocks and bonds. ‘stocks’ include

equity shares (which in turn may be classified into income shares, growth shares,

blue chip shares, cyclical shares, speculative shares, and so on) and units / shares of

equity-oriented schemes of mutual funds (like Master shares,Birla advantage, and so

on).

‘Bonds’, defined very broadly, consist of non convertible-debentures of

private companies, public sector bonds, gilt-edged securities, RBI relief bonds, units

/ shares of debt-oriented schemes, deposits in the national savings shame, and so on.

The basic characteristics of this investment are that they earn a fixed or near-fixed

return. Should the long-term stock-bond mix be 50:50 or 75:25 or any other?

Referred to as the strategic-asset mix decision (policy asset maxi decision), this is by

far the most important decision to be made by the investor. Empirical studies have

shown that nearly 90percent of the variance of the portfolio return is explained by its

asset mix. Put differently, only 10 percent of the variance of the portfolio return is

explained by the other elements like’ sector rotation’ and’ security selection. Given

the significance of the asset-mix decision, you should hammer it out carefully.

Conventional wisdom on asset mix:

The conventional wisdom on asset mix is embodies in two

propositions:

Other things being equal, an investor with greater tolerance for risk should tilt the

portfolio in favors of stocks; where as an investor with lesser tolerance for frisk

should tilt the portfolio in favour of bonds. This is because in general, stocks are

riskier than bonds and hence raen higher returns than bonds. JAMES H.LORE

45

summed up the long view well when he stated:’ the most enduring relation in all

finance perhaps is the relation ship between returns on equities or stocks and returns

on bonds.’ a similar observation can be made when we look at the returns on stocks

and bonds in India for the last two decades.

Other things being equal, an investor with a long investment horizon should tilt his

portfolio in favor of stocks where as investor with a shorter investor horizon tilts his

portfolio in favour of bonds. This is because while the expected return from stocks is

not sensitive to the length of the investment period, the risk from stocks diminishes

as the investment period over the period 1950-1980 in the U.S capital market. One

can reasonably expect a similar pattern in other capital markets as well. Why does

the risk of stocks diminish as the investment period lengthens? As the investment

period lengthens, the average yearly return over the period is subject to lesser

volatility because low returns in some years may be

Offset by high returns in other years and vice versa. Put differently there is benefit

of ‘time diversification’. As period, they invest through many periods. Hence they

are more comfortable investing in riskly assets over long run that over the short run.’

The implication of the above proposition are captures in exhibit which shoes how

the appropriate percentage allocate to the stock component of the portfolio is

influenced by the two basic factors, viz risk tolerance and investment horizon. To

obtain the corresponding percentage allocation for the bond component of the

portfolio, simply subtract the number given in the exhibit from 100.you will find this

matrix, helpful in resolving in your asset-mix decision.(of course, before using this

matrix, you should define your risk tolerance / short time horizon may be raised to

10 percent or so. In a similar manner, the 100 percent, given for the cell high risk

tolerance / long time horizon the benefit of diversification across stocks and bonds.

46

Appropriate percentage allocation in the stock component of the portfolio

Time horizon Risk Tolerance

Low moderate High

short 0 25 50

Medium 25 50 75

Long 50 75 100

For the sake of simplicity, we assumed there is a single investment horizon. In

reality, an investor may have multiple investment horizons corresponding to varied

needs. For example, the investment horizons corresponding to various goals sought

by an investor may be as follows:

Investment goal investment horizon

Buying a car two years

Constructing a house ten years

Achieving financial independence twenty years

Establishing a charitable institution thirty years

Obviously, the appropriate asset mix corresponding to these investment goals would

be different.

Formulation of portfolio strategy:

After you have chosen a certain asset mix, you have to formulate the

appropriate portfolio strategy. Two broad choices are available in this respect, an

active portfolio strategy or a passive portfolio strategy.

47

Active portfolio strategy

An active portfolio strategy is followed by most investment professional and

aggressive investors who strive to earn superior returns, after adjustment for risk.

The four principal vectors of an active strategy, as shown in the exhibit are:

Market timing

Sector rotation

Security selection

Use a specialized concept

Vectors of active portfolio management

Highly active highly passive

Market timing …………………………………………..

Sector rotation …………………………………………..

Security selection …………………………………………

Use a specialized concept …………………………………………..

Market timing:

This involves departing from the normal or strategy or long run asset mix to

reflect one’s assessment of the prospects of various assets in the near future.

Suppose your investible resources for financial assets are 100 and your normal or

strategic stock bond mix is 50:50. in the short hand and intermediate run however

you may be inclined to deviate from your long-term asset mix. If you expect stocks

to out perform bonds, on a risk-adjusted basis , in the near future, you may perhaps

set up the stock component of of your portfolio to say 60 or 70 percent. Such an

action, of course, would raise the beta of your portfolio. On the other hand, if you

48

expect bonds to out-perform stocks, on a risk adjusted basis, in the near future, you

may set up the bond component of your portfolio to 60 percent or 70 percent. This

will naturally lower the beta of your portfolio.

Marketing timing is based on an explicit or implicit of general market

movements. The advocate of market timing employs a variety of tools like business

cycle analysis, moving average analysis, advance-decline analysis, and econometric

models. The forecast of the general market movement derived with the help of one

or more of these tools is tempered by the subjective judgment of the investors.

Often, of course, the investor may go largely by his market sense.

Anyone who reviews the fluctuation in the market may be tempered to play

the play of marketing timing. Yet very few seem to succeed in this game. A careful

study on market timing argues that a investment manager must forecast the market

correctly 75 percent of the time to break-even, after taking into account the cost of

errors and the cost of transactions. As FISHER BLACK said: ’the market does just

as well, on average, when the investor is out of the market as it does when he is in.

so he loses money, relative to a simple buy-and-hold strategy, by being out of the

market part of the time’. Echoing a similar view JOHN BOGLE, chairman of the

vanguard group of investment companies said: ‘ in 30 years in this business, I do not

know any one who has done it successfully and consistently, nor any body who

knows any body who has done it successfully and consistently. Indeed, my

impression is that trying to do market timing is likely to be counter productive. “

JOHN MAYNARD KEYNES rendered a similar verdict decades ago:’ we have not

proved able to take much advantage of a general systematic out of and into ordinary

shares as a whole at different phases of the trade cycle. As a result of these

49

experiences I am clear that the idea of whole sale shifts is for various reasons

impracticable and indeed undesirable.

Sector rotation:

The concept of sector rotation can be applied to stocks as well as bonds. It is,

however, used more commonly with respect to the stock component of the portfolio

where it essentially involves shifting the weightings for various industrial sector

based on their assessed outlook. For example, if you believe that cement and

pharmaceutical sector would do well compared to other sector in the forthcoming

period (one year, two years, or whatever,) you may overweight these sectors,

relative to their position in the market portfolio.

With respect to binds, sector rotation implies a shift in the composition of the bond

portfolio in terms of quality (as reflected in credit rating ), coupon rate, term to

maturity, and so on. For example. If you anticipate a rise in interest rates you may

shift from long-term bonds to medium-term or even short-term bonds. Remember

that a long-term is sensitive to interest rate variation compared to short-term bond.

Security selection:

Perhaps the most commonly used vector by those who follow an active

portfolio strategy, security selection involves a search for under-priced securities. If

you resort to active stock selection, you amyl employ fundamental and or technical

analysis to identify stocks which seem to promise superior returns and concentrate

the stock component of your portfolio on them. Put differently, in your portfolio

such will be over weighted relative to their position to their market portfolio. Like-

wise, stocks which are perceived to be unattractive will be underweighted relative to

position in their market portfolio. As far bonds are concerned, security selection

50

calls for choosing bonds which offer the highest yield to maturity at a given level of

risk.

Use of a specialized investment concept:

A fourth possible approach to achieve superior returns is to employ a

specialized concept or philosophy, particularly with respect to investment in stocks.

As CHARLES D.ELLIS put it, a possible way to enhance returns” is to develop

profound and valid insight into the forces that drive a particular centre of the market

or a particular group accompanies or industries and systematically exploit that

investment insight or concept.”

Some of the concepts that have been exploited successfully by investment

practitioners are

1. Growth stocks:

2. Neglected or ‘out of favour’ stocks:

3. Asset-ridge stocks:

4. Technology stocks:

5. Cyclical stocks:

The advantage of cultivating a specialized investment concept or philosophy is that

it will help you to:

A) Focus your efforts on a certain kind of investment that reflect your abilities

and talents,

B) Avoid the distraction of pursuing other alternatives, and

C) Master an approach or style though sustain practice and continual self-

critique. As against these merits, the great disadvantage of focusing exclusively on a

51

specialized concept or philosophy is that it may become obsolete. The changes in

market place may cast a shadow over the validity of the basic premise underlying

the investment philosophy. Give your profound condition and long-term

commitment to your specialized investment concept or philosophy, you may not

detect the need for change till it becomes rather late.

Passive strategy:

The active strategy is based on the premise that the capital market is characterized

by inefficiencies which can be exploited by resorting to market timing or sector

rotation or security selection or use of a specialized concept or some combination of

these vectors. The passive strategy, on the other hand, rests on the tenant that he

capital market is fairly efficient with respect to the available information. Hence,

the search for superior returns through an active strategy is considered futile.

Operationally, how is the passive strategy implemented? Basically, it involves

adhering to the following two guide lines:

1. Create a well-diversified portfolio at a pre-determined level of risk.

2. Hold the portfolio relatively unchanged over time, unless it becomes in

adequately

3. Diversified or inconsistent with the investor’s risk-return preferences.

Selection of securities:

Selection of bonds (fixed income avenues)

You should carefully evaluate the following factors in selecting fixed income

avenues

1. yield to maturity:

52

2. the yield to maturity for a fixed income avenue reoresents the rate of retun

earned by the investor if he invests in the fixed income avenue and holds it

till its maturity.

3. risk of default:

4. to asses the risk of default on a bond, you may look at the credit rating of the

band. If no credit ratin is available, examine relevant financial ratios (like

debt-to-equity ratio, times interest earned ratio, and earning power) of the

firm and asses the general prospects of the industry to which the firm

belongs.

a. in yester years, several fixed income avenues offered tax shield; now

very few do so.

b. Liquidity:

If the fixed income avenue can be converted wholly or substantially into cash at a

fairly short notice, it possesses liquidity of a high order.

Selection of stocks (equity shares)

Three broad approaches are employed for the selection of equity shares:

technical analysis looks at price behavior and volume data to determine whether the

share will move up or down or remain trend less. Fundamental analysis focuses on

fundamental factors like the earnings level the growth prospects, and risk exposure

to establish the intrinsic value and the prevailing market price. The random selection

approach is based on the premise that the market is efficient and securities are

properly priced.

Portfolio execution:

By the time the portfolio management is reached , several keys issues have

been sorted out. Investment objectives and constraints have been specified, asset

53

mix has been chosen, portfolio strategy has been developed, and specific securities

to be included in the portfolio have been identified. The next step is to implement

the portfolio plan by buying and or selling specified securities in given amounts. this

is the phase of portfolio execution which is often glossed over in the portfolio

management literature. However it is an important practical step that has an

significant bearing on investment results. Further, it is neither simple nor costless as

is sometimes naively felt. For effectively handling the portfolio execution phase,

you should understand what the trading game is like, what is the nature of key

players (transactors) in this game, who are the likely winners and the losers in the

game, and what guidelines should be borne in mind while trading.

Trading game:

Security transactions tend to differ from normal business transactions in two

fundamental ways:

1) a business man entering in to a transaction does so with a reasonable

understanding of the motives of the party on the other side of the transaction. For

example, when you are buying a piece of machinery, you are well aware of the

motives of the seller. In constrast, in a typical securities transaction, the motive , and

even the identity, of the other party is not known.

2) While both parties generally gain from a business transaction, a security

transaction tends to be a zero sum game. A security offers the same future cash flow

stream to the buyer as well as the seller. So, apart from considerations of taxes and

differential risk-bearing abilities, the value of security is the same to the buyer as

well as the seller. Hence constructive motives which guide business transaction are

not present in most security transactions. This means that if a security transaction

benefits a party it hurts the other.

54

Put differently, if one wins the other loses.

Motives for trade:

Why do people trade? One motivation is cognitive. People trade because they think

they have superior information or better methods for analyzing information.

However, most traders tend to confuse noise or randomness for information. As

MEIRSTATMON says:

‘’ traders are patterns in stock prices that are random, and they relay on intuitive

judgement even when systematic analysis would have demonstrated that their

judgement in incorrect’’.

Another motivation is emotional. Trading ca be a source of pride. As

MEIRSTATMAN says; ‘’ specifically people trade because trading brings with it

the joy of pride. When someone decides to buy a stock he assumes responsibility for

the decision. A stock that goes up brings not only profits, but also pride.’’ Of course,

if the trading decision turns out to be wrong it can inflict losses and cause

embarrassment.

Key players:

Securities market appears to be thronged by four types of players or transactions:

value-based transactors, information-based transactors, liquidity based transactors,

and pseudo-information based transactors. Generally, the dealer or the market maker

intermediates between these transactors.

Value based transactors:

A value based transactor (VBT, here after) carrier out extensive analysis of publicly

available information to establish values. He trades when the difference between the

value assessed by him and the prevailing market prices so warrants. Typically, he

places limit orders to buy and sell with a spread that is large enough to provide a

55

cushion against errors of judgement and informational lacunae. For example, a VBT

who establishes an intrinsic value of RS 50 for some equity share may place an

order to buy if the net price is RS 40 or less. VBT s generally serve as the anchor for

the trading system and establish the framework for the operations for the dealers.

VBT s typically don’t place much important on time.

Information based transactors:

An information based transactor ( IBT here after) transacts on the basis of

information which is not in public domain and, therefore, not reflected in security

prices. Since he expects this information to have a significant impact on prices, he is

keen to transact soon. To him, time is a great value. While the VBT is concerned

about how much the market will move towards the justified price. (the price

established in him based on fundamental analysis ), the IBT is bothered about how

soon the market price will move up or down in response to new information. The

IBT generally employs ‘incremental’ fundamental analysis (as he is concered about

price movements in response to new information). In addition, he uses technical

analysis because timing is crucial to his operations. Unlike the VBT, he rarely tries

to establish the absolute value of a security. Instead, he tries to assess the likely

impact of marginal fundamental and technical developments.

Liquidity based transators:

A VBT, like an IBT, trades to reap investment advantage. A liquidity based

transactor (lbt, hereafter) however, trades primarily due to liquidity considerations.

He trades to deploy surplus funds or to obtain funds or to rebalances the portfolio.

His trades are not based on a detailed valuation exercise ( as is the case of VBT) or

access to some information that is not already reflected in market price ( as is the

56

case of an IBT) . Hence he may be regarded as an information less trader who is

driven mainly by liquidity considerations.

Pseudo-information Based transactors:

A pseudo-information based transactor IPIBT, hereafter) believes that he

possesses information that can be a source of gain, even though yhat information is

already captured or impounded in the price of the security. Or, he exaggerates the

value of new information that he may come across and forms unrealistic

expectations. Essentially, the PIBT, like the LBT, is an information less trader. Yet,

he mistakenly believes that the possesses information which will generate

investment advantage to him.

Dealers:

A dealer intermediates between buyers and sellers gager to transact. The

dealer is ready to buy or sell with a spread which is failly small for an certain

security may be 80-82. this means that the dealer is willing to buy at 80 and sell at

82. the dealer’s quotations may move swiftly in response to changes in demand and

supply forces in the market. Typically the dealer’s bid-ask price band lies well with

in the bid-ask price band set by the VBT. This means that the bid price of the dealer

is higher than the bid price of the VBT and the ask price of the dealer is lower than

the ask price of VBT. The dealer’s function is such that he is not required totake a

view on whether a security is worth buying or worth selling.he simply plays the role

of the intermediary and he does not plan to hold the position he acquires in

accommodating a transaction. Hence the dealer is a remarkably innocuous person.

Lurking behind the dealer, of the cource

, is the transistor’s real trading adversary, whose identify and motive are often

unknown.

57

Exhibit summaries the trading trading motivations, time horizons, and time

Transactor Motivation Time horizon Time vs price

preference

VBT Discrepancy between

value and price

Weeks to months Price

IBT

LBT

New information

release or absorb cash

Hours to days Time

PIBT Apparently new

information

Hours to days Time

Dealer Accommodation Mutes to hours indifferent

Summary of trading Motivations, Time horizons, and Time vs price

preferences

Who wins, who loses

Who wins and who loses in the trading game which is essentially a zero sum game.

It appear that the IBT’S odds of winning are the highest, assuming that his

information is substantiated by the market he is followed by the VBT, LBT, and

PIBT in the that order.

Put differently, the, the above question may be answered as follows:

The IBT seems to have a distinct edge over others.

The VBT tends to lose against the IBT but gains against the LBT and PIBT.

The LBT may have some advantage over the PIBT.

58

Scripts Which I Have Selected

S.L.N.O SECTOR COMPANY

1 ENERGY RELIANCE

2 OIL INDIAN OIL CORP

3 PHARMA CIPLA

4 STEEL JINDAL STEEL

CALUCALTION OF STANDARD DEVIATION OF CIPLA

DATER SHARE

PRICE

R

AVARAGE

R-R

DEVIATIONS

[R-R} SQUARE

DEVIATIONS

6/1/2006 292.2000 297.1196 -4.9196 24.2025

6/2/2006 289.3000 297.1196 -7.8196 61.1461

6/3/2006 290.7500 297.1196 -6.3696 40.5718

6/5/2006 289.5000 297.1196 -7.6196 58.0583

6/6/2006 289.8500 297.1196 -7.2696 52.8471

6/7/2006 289.8000 297.1196 -7.3196 53.5756

6/8/2006 295.4000 297.1196 -1.7196 2.957

6/9/2006 293.6000 297.1196 -3.5196 12.3876

6/10/2006 291.4500 297.1196 -5.6696 32.1444

6/13/2006 290.1000 297.1196 -7.0196 49.2748

6/14/2006 290.4000 297.1196 -6.7196 45.153

6/15/2006 288.2000 297.1196 -8.9196 79.5593

6/16/2006 285.9500 297.1196 -11.1696 124.76

6/17/2006 284.9500 297.1196 -12.1696 148.0992

59

6/19/2006 284.7500 297.1196 -12.3696 153.007

6/20/2006 304.8500 297.1196 7.7304 59.7591

6/21/2006 312.4560 297.1196 15.3304 235.0211

6/22/2006 310.7000 297.1196 13.5804 184.4273

6/23/2006 314.3000 297.1196 17.1804 295.1661

6/24/2006 310.7000 297.1196 13.5804 184.4273

6/26/2006 310.9000 297.1196 13.7804 189.8994

6/27/2006 310.0000 297.1196 12.8804 165.9047

6/28/2006 313.6500 297.1196 16.5304 273.2541

TOTAL 6833.7500 2525.6037

Average (R) = 6833.7500/23 =297.1196

Variane = 1/23-1(2525.6037)

Variance =114.8002

Standard Deviation = Variance

Standard Deviation = 114.8002

Standard Deviation = 10.7145

60

CALUCALTION OF STANDARD DEVIATION OF IOC

DATE

R SHARE

PRICE

R

AVARAGE

R-R

DEVIATIONS

[R-R]2SQUARE

DEVIATIONS

6/1/2006 463.6500 445.6374 18.0126 251.622

6/2/2006 461.5000 445.6374 15.8626 254.8045

6/3/2006 461.6000 445.6374 15.39626 193.5604

6/5/2006 459.5500 445.6374 13.9126 179.8978

6/6/2006 459.0500 445.6374 13.4126 174.5728

6/7/2006 458.8500 445.6374 13.2126 168.029

6/8/2006 458.0000 445.6374 12.9626 134.8524

6/9/2006 457.2500 445.6374 11.6126 62.6092

6/10/2006 453.5500 445.6374 7.6126 57.9517

6/13/2006 453.2500 445.6374 7.6126 27.9649

6/14/2006 450.9000 445.6374 5.2626 19.9148

6/15/2006 450.1000 445.6374 4.4626 2.0661

6/16/2006 444.2000 445.6374 -1.4374 27.9566

6/17/2006 440.3500 445.6374 -5.2874 70.3485

6/19/2006 437.2500 445.6374 -8.33874 206.9973

6/20/2006 431.2500 445.6374 -14.3874 232.1784

6/21/2006 430.1000 445.6374 -15.2374 232.1784

6/22/2006 429.3500 445.6374 -16.2874 265.2794

6/23/2006 432.0500 445.6374 13.5874 184.6174

6/24/2006 433.1000 445.6374 -12.5374 157.1864

6/26/2006 431.0000 445.6374 -14.6374 214.2535

6/27/2006 429.7500 445.6374 -15.8874 252.4095

6/28/2006 423.4000 445.6374 -22.2374 494.502

         

TOTAL 10249.6500     3958.0283

61

Average (R) = 10249.6500/23 =445.6374

Variane = 1/23-1(3958.0283

Variance = 179.8981

Standard Deviation = Variance

Standard Deviation = 179.8981

Standard Deviation = 13.4126

62

CALUCALTION OF STANDARD DEVIATION OF RELIANCE

DATE

R SHARE

PRICE

R

AVARAGE

R-R

DEVIATIONS

[R-R]2SQUARE

DEVIATIONS

         

6/1/2006 541.0000 593.5456 -52.5456 2761.0401

6/2/2006 529.8500 593.5456 -63.6956 4057.1294

6/3/2006 533.1500 593.5456 -60.6956 3647.6285

6/5/2006 555.2000 593.5456 -38.3456 1470.385

6/6/2006 552.3000 593.5456 -41.2456 1701.1995

6/7/2006 547.8500 593.5456 -45.6956 2088.0879

6/8/2006 558.4500 593.5456 -35.0956 1231.7011

6/9/2006 559.0500 593.5456 -34.4956 1189.9464

6/10/2006 566.5500 593.5456 -26.9956 726.6044

6/13/2006 569.6000 593.5456 -23.9456 573.3918

6/14/2006 574.0500 593.5456 -19.4956 380.0784

6/15/2006 574.9500 593.5456 -26.9956 345.7963

6/16/2006 590.2500 593.5456 -3.2956 10.8609

6/17/2006 600.2500 593.5456 6.7044 44.9489

6/19/2006 630.5000 593.5456 36.9544 1365.6276

6/20/2006 646.1500 593.5456 52.6044 2767.2228

6/21/2006 654.5500 593.5456 61.0044 3721.5368

6/22/2006 650.6000 593.5456 57.0544 3255.2045

6/23/2006 654.6500 593.5456 61.1044 3733.4948

6/24/2006 648.6500 593.5456 55.1044 3036.4948

6/26/2006 629.5500 593.5456 36.0044 1296.3168

6/27/2006 641.8500 593.5456 48.3044 2333.315

6/28/2006 642.5500 593.5456 49.0044 2401.4312

63

         

TOTAL 13651.5500   44139.6957

CALUCALTION OF STANDARD DEVIATION OF JINDAL STEEL

R SHARE PRICER

AVARAGE

R-R

DEVIATIONS

[R-R]2SQUARE

DEVIATIONS

DATE

6/1/2006 905.6000 898.0435 7.5565 57.1006

6/2/2006 898.6500 898.0435 0.6065 0.3678

6/3/2006 900.6000 898.0435 2.5565 6.5357

6/5/2006 903.0500 898.0435 5.0065 25.065

6/6/2006 905.0500 898.0435 7.0065 49.091

6/7/2006 901.9000 898.0435 3.8565 14.8726

6/8/2006 899.5500 898.0435 1.5065 2.2695

6/9/2006 900.0000 898.0435 1.9565 3.8279

6/10/2006 900.0500 898.0435 2.0065 4.026

6/13/2006 900.0000 898.0435 1.9565 3.8279

6/14/2006 886.5500 898.0435 -11.4935 132.1005

6/15/2006 899.3000 898.0435 1.2565 1.5788

6/16/2006 879.5500 898.0435 -18.4935 342.0095

Average (R) = 13651.55/23 = 593.5456

Variane = 1/23-1(44139.6957)

Variance = 2006.3498

Standard Deviation = Variance

Standard Deviation = 2006.3498

Standard Deciation = 44.7922

64

6/17/2006 886.0000 898.0435 -12.0435 145.0459

6/19/2006 895.3000 898.0435 -2.7435 7.5267

6/20/2006 897.8500 898.0435 -0.1935 0.0374

6/21/2006 914.0000 898.0435 -15.9565 254.6099

6/22/2006 920.3000 898.0435 22.2565 495.3518

6/23/2006 922.4000 898.0435 24.7065 593.23914

6/24/2006 922.7500 898.0435 24.3565 610.4111

6/26/2006 897.8500 898.0435 -0.1935 0.0374

6/27/2006 888.6000 898.0435 -9.4435 89.1797

6/28/2006 830.0000 898.0435 -68.0435 4626.9179

TOTAL 20654.9000 7468.0298

Average (R) = 20654.9000/23 =898.0435

Variane = 1/23-1(7468.0298)

Variance =339.4559

Standard Deviation = Variance

Standard Deviation = 339.4559

Standard Deviation = 18.4243

CALUCLATED AVERAGE AND STANDARD DEVIATION

Reliance 593.5456 44.7922

     

Indian Oil 445.6374 13.4126

     

65

Cipla 297.1196 10.7145

     

Jindal Steel 898.0435 18.4243

CORRELATION BETWEEN CIPLA & RELIANCE

       

  DEVIATION OF CIPLA

DEVIATION

RELIANCE

COMBINED DEVIATION

DATE RA-RA RB-RB (RA-RA)(RB-RB)

6/1/2006 -4.9196 10.5848 -52.0729

6/2/2006 -7.8196 0.7848 -6.1368

6/3/2006 -6.3696 -0.1152 0.7338

6/5/2006 -7.6196 -3.7152 28.3083

STANDARD DEVIATION

COMPANY NAME PERCENTAGE

RELIANCE 29%

INDIAN OIL 9%

CIPLA 7%

JINDAL STEEL 12%

66

6/6/2006 -7.2696 0.7348 -5.3417

6/7/2006 -7.3196 3.1848 -23.3115

6/8/2006 -1.7196 10.8348 -18.6315

6/9/2006 -3.5196 18.6348 -65.5870

6/10/2006 -5.6696 6.7348 -38.1836

6/13/2006 -7.0196 11.4348 -80.2677

6/14/2006 -6.7196 13.5348 -90.9484

6/15/2006 -8.9196 11.5348 -102.8858

6/16/2006 -11.1696 10.1348 -113.2017

6/17/2006 -12.1696 5.1848 -63.0969

6/19/2006 -12.3696 3.4348 -42.4871

6/20/2006 7.7304 -2.8152 -21.7626

6/21/2006 15.3304 -16.0152 -245.5519

6/22/2006 13.5804 -19.0152 -258.2340

6/23/2006 17.1804 -20.4152 -350.7413

6/24/2006 13.5804 -3.9652 -53.849

6/26/2006 13.7804 -21.6152 -284.0857

6/27/2006 12.8804 -17.4652 -224.9588

6/28/2006 16.5304 -1.6152 -26.6999

       

TOTAL     -2138.9937

CO-Variance (COVAB)=1/23 (-2138.9937)

-92.9997

COVAB

Correlation Coefficient

(PAB)=

67

(Std.A) (Std.B)

-99.9997

-0.7349

(10.7145)(11.81)

CALUCLATED CORRELATION CO-EFFICIENT AND PORTFOLIO

RISK BETWEEN TWO COMPANIES

COMPANY NAME Correlation coefficient Risk (%) Portfolio

     

CIPLA & RELIANCE -0.6442 15.8189

     

RELIANCE & INDIAN OIL -0.9343 6.6600

68

PORTFOLIO RISK

P = √ X

12 1

2 + X22 2

2 + 2(X1) (X2) (12) 12

Where X1 = Proportion of Investment in Security 2.

X2 = Proportion of Investment in Security 1.

1 = Standard Deviation of Security 1.

2 = Standard Deviation of Security 2.

X12 = Correlation Co-Efficient between Security 1 and 2.

p = Portfolio Risk.

1. CIPLA & RELIANCE

X1 = 0.83 1 = 11.81

X12 = -0.6442

X2 = 0.17 2 = 44.7922

P = √ X

12 1

2 + X22 2

2 + 2(X1) (X2) (12) 12

(0.83)2(11.81)

2 + (0.17)

2(44.7922)

2+2(0.83)(0.17) (-0.6442)(11.81)(44.7922)

69

0.6889 Х 139.4761 + 0.0289 Х 2006.3412 + 96.1679

96.0851 + 154.1516 15.8189

PORTFOLIO RISK

P = √ X

12 1

2 + X22 2

2 + 2(X1) (X2) (12) 12

Where X1 = Proportion of Investment in Security 2.

X2 = Proportion of Investment in Security 1.

1 = Standard Deviation of Security 1.

2 = Standard Deviation of Security 2.

X12 = Correlation Co-Efficient between Security 1 and 2.

p = Portfolio Risk.

2. RELIANCE & IOC

X1 = 0.68 1 = 13.4126

X12 = -0.9343

X2 = 0.32 2 = 44.7922

P = √ X

12 1

2 + X22 2

2 + 2(X1) (X2) (12) 1

70

(0.68)2(13.4126)

2 + (0.32)

2(44.7922)

2+2(0.68)(0.32) (-0.9343) (13.4126)(44.7922)

83.1847 + 205.4493 – 244.2815

6.66

PORTFOLIO WEIGHTS

CIPLA & RELIANC

FORMULA:

2b – Pab a b

Xa =

2a + 2

b -2Pab a b

Xb = 1 – Xa

Xa = CIPLA

Xb = RELIANCE

a = 11.81 b = 44.7922 Pab = -0.64422

(44.7922)2

– (-0.6442) (11.81) (44.7922)

Xa =

(11.81)2 + (44.7922)2 – 2(-0.6442) (11.81 ) (44.7922)

2006.3412 + 340.7791

=

139.4761 + 2006.3411 + 681.

2347.1203

=

2827.3754

71

= 0.83

Xb = 1 – Xa

Xb = 1 – 0.83 = 0.17

RELIANCE & IOC

FORMULA:

2b – Pab a b

Xa =

2a + 2

b -2Pab a b

Xb = 1 – Xa

Xa = IOC

Xb = RELIANCE

a = 13.4126 b = 44.7922 Pab = -0.9343

(44.7922)2

– (-0.9343) (13.4126) (44.7922)

Xa =

(13.4126)2 + (44.7922)2 – 2(-0.9343) (13.4126 ) (44.7922)

2006.3412 + 561.3086

=

179.8978 + 2479.2639 + 1122.6172

2567.6498

=

3781.7782

72

= 0.68

Xb = 1 – Xa

Xb = 1 – 0.68 = 0.32

CONCLUSIONS FOR TWO ASSETS PORTFOLIO’S

1. CIPLA & RELIANCE

In this combination, as per calculations and study CIPLA bears a proportion of

0.83 and where as RELIANCE bears a proportion of 0.17, which is less

compared CIPLAproportion, the deviation of two companies are 11.8100 for

CIPLA and 44.7922 for RELIANCE

Here risk of CIPLA is lesser than the RELIANCE i.e.

11.8100<44.7922. So investors can invest their money or fund in CIPLA, which

has less standard deviation means less risk.

Where as, the portfolio risk of two companies are reduced to 15.8189.

2. RELIANCE & INDIAN OIL

As per this combination portfolio weights are 0.68 and 0.32 for Indian Oil and

Reliance respectively and standard deviation of Indian Oil is 13.4126 which is less

compare to the standard deviation of Reliance i.e. 44.7922, which means less risk

involved in Indian Oil compare to Reliance. So, to any investor wants to invest his

money or fund in this portfolio, it is suggested that he can invest some portion of

fund in Indian Oil and rest of part in Reliance.

The portfolio risk of the companies Reliance and Indian Oil 6.6600, which is

less than the individual companies risk

73

BIBLIOGRAPHY

V A avadhani, Security Analysis and Portfolio Management, Himalaya publishing

house,Pp 1-18,

Ibid. 436-450.

Donald E fisher and Ronald j jardan, Security Analysis and Portfolio Management,

6th edition, Pearson education, Pp 2-5.

Ibid. 285.

S.Kevin, Portfolio Management, Prentic, hall India pvt ltd.2003, Pp 1-18.

Prasanna Chandra, Investment Analysis Portfolio Management, Tata Mc Graw-hill

Publishing Company ltd, Pp 218-220.

V k Bhalla, Investment management, 10th edition, S chand and company Ltd, Pp

701-710.

WEB SITES:

http://www.Amfindja.Com/

htpp://www.Utimf.Com/

http://www.BseIndia.Com/

http://www.sebi.govt.in/

74

http://www.hseindia.com/

75