...Judge the Risk by Portfolio When the investors put their money into the stock market, it means that they must take the risk of the stock market, because risk is one of the natural qualities of the stock market. One company easy to get a poor performance and its stocks will go down. Therefore, there will be no way to complete avoid risk, but judge it. In finance, risk is best judged in a portfolio context. Because the possibility that many companies gets serious performances, and their stock price go down at the same time is lower than for only one company. This essay will discuss that why the portfolio context is the best way to judge the risk in the finance market. The first part will introduce the basic theories for portfolios. The methods of measuring risks and value of the portfolio will be explained in the second part to demonstrate that why it is better select portfolios. The third part will give the example of family groupings on performance of portfolio selection in the Hong Kong stock market. The conclusion will be given at the end of the essay. Firstly, the theory of portfolio and the five suppositions of portfolio selection need to be explained before the following discussion of the value of portfolios. The article ‘Portfolio Selection’, which was issued on Journal of Finance in 1952 and the book ‘Portfolio Selection: Efficient Diversification of Investments’ which was published in 1959 was known as the opening if the modern portfolio theory. The author of these...
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...Michael D. Hutt, & Beth A. Walker Balancing Risk and Return in a Customer Portfolio Marketing managers can increase shareholder value by structuring a customer portfolio to reduce the vulnerability and volatility of cash flows. This article demonstrates how financial portfolio theory provides an organizing framework for (1) diagnosing the variability in a customer portfolio, (2) assessing the complementarity/similarity of market segments, (3) exploring market segment weights in an optimized portfolio, and (4) isolating the reward on variability that individual customers or segments provide. Using a seven-year series of customer data from a large business-to-business firm, the authors demonstrate how market segments can be characterized in terms of risk and return. Next, they identify the firm’s efficient portfolio and test it against (1) its current portfolio and (2) a hypothetical profit maximization portfolio. Then, using forward- and back-testing, the authors show that the efficient portfolio has consistently lower variability than the existing customer mix and the profit maximization portfolio. The authors provide guidelines for incorporating a risk overlay into established customer management frameworks. The approach is especially well suited for business-to-business firms that serve market segments drawn from diverse sectors of the economy. Keywords: customer portfolio management, market-based assets, financial portfolio theory, return on marketing, market segmentation ...
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...Assessing the risk, return and efficiency of banks’ loans portfolios ∗ Javier Menc´ ıa Bank of Spain June 2008 Preliminary and Incomplete Abstract This paper develops a dynamic model to assess the risk and profitability of loans portfolios. I obtain their risk premia and derive the risk-neutral measure for an exponentially affine stochastic discount factor. I employ mean-variance analysis with a VaR constraint to assess efficiency. Then I compare Spanish institutions in an empirical application, where small institutions seem to be less efficient than large ones on aggregate terms, while commercial and savings banks perform better on their respective traditional markets. Finally, I find increasing discrepancies between riskneutral and actual default probabilities since June 2007 and discuss their possible sources. Keywords: Credit risk, Probability of default, Asset Pricing, Mean-Variance allocation, Stochastic Discount Factor, Value at Risk. JEL: G21, G12, G11, C32, D81, G28. This paper is the sole responsibility of its author. The views represented here do not necessarily reflect those of the Bank of Spain. Thanks are due to Alfredo Mart´ for his valuable suggestions as well as for ın, help with the interest rate database. Of course, the usual caveat applies. Address for correspondence: Alcal´ 48, E-28014 Madrid, Spain, tel: +34 91 338 5414, fax: +34 91 338 6102. a ∗ 1 Introduction Standard capital market theory states that there is a risk-return tradeoff in equilib- ...
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...Kochman’s and Badarinathi’s mathematical case for upside deviation deals with portfolio upside deviations being divided by a market’s upside deviations to so show the resulting ratio and how it facilitates other tests for positive or negative skewness. The article discusses how CAPM is inappropriate for the evaluation of portfolios given that is not only assumed that the returns on distributions are symmetrical, but that the beta (performance and return-to-risk ratios) underestimates the risk of larger numbers of mutual funds. Kochman and Badarinathi needed to answer two questions; can upside deviation be the means for portfolio evaluations and can this be done by taking the upside deviation of portfolios and divide those figure by the upside deviation of the market? Kochman and Badarinathi believe that to make a case for upside deviation as a means for portfolio evaluations is to take the upside deviation of the portfolio(s) and dividing it by the market(s) upside deviation. This would result with a ratio that facilitates another test of positive or negative skewness. To test whether the ratio of portfolio-to-market upside deviations as a success, a test on fund returns would need to be conducted to ensure a meaningful difference between upside deviations, portfolios, and markets. The overall findings showed that the relationships between low betas and low upside volatility appeared to be weaker than the relationships between high betas and high upside volatility. In addition...
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...run. In 2000 Black and Decker Corporation was still reeling from the financial and strategic problems stemming from the company's acquisition of Emhart Corporation in 1989. In late 1998 Black & Decker management celebrated the completion of an almost decade-long effort to divest nonstrategic business gained through its 1989 acquisition of Emhart Corporation and expected the company to enter a long-awaited period of growth as its entire management refocused its attention on its core power tools, plumbing, and security hardware business. Archibald believed that "This portfolio restructuring will allow us to focus on core operations that can deliver dependable and superior operating and financial results." However the portfolio restructuring did little to improve the market performance of the company's securities. Yet Archibald and the management continued to express confidence that the company's streamline portfolio would allow Black & Decker to achieve revenue and earnings growth that the market would find impressive. So far the 1998 divestitures have not produced steady increases in the company's stock price, but look promising for the future due to the efforts to refocus efforts on the successful power tools line. Strategic planning team evaluation Over the years, Black & Decker has branched off into many different directions in order to gain as much market share as possible. The diversification program in the 1980s produced mixed results for shareholders, and later...
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...work and needs to plan accordingly. One main question that is always a difficult one to answer is how long one needs to work before they can comfortably stop working and rely on their financial portfolio to take care of expenses after work. In order to analyze these questions, a deterministic model of an investment portfolio was created and stochastic modeling was used to determine the likelihood of being able to accumulate the necessary finances over the desired period of time. Quantitative Analysis: 1. Using the given deterministic model, the annual outflows were estimated from the retirement portfolio over the retirement years and the estimated return on the account was also calculated. It was determined that under these basic assumptions of salary and portfolio growth rate the portfolio could expect to grow to $452,900 within thirty years. However, this assumed a fixed salary growth rate of 5% as well as a 4% annual investment rate. Given the high rate of inflation and the projected expenses after retirement, it was calculated that if this money was to last for the retirement, then even pulling out $50,000 per year in expenses would cause the account to run out after just a few years. 2. Adjusting the annual rate to 8% from 4% had a major effect. Although the portfolio fell short of the one million dollar goal by only reaching $853,633, this was a major effect as it allows the individual the ability to pull $100,000 each year from this account and still sustain...
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...July 27, 2011 Assignment #2: Risk Assessment, Portfolio Management 1. You are given the following long-run annual rates of return for alternative investment instruments: • US Government T-Bills 3.5% • Large-cap common stocks 12.1% • Long-term corporate bonds 6.2% • Long-term government bonds 5.6% • Small-capitalization common stock 14.6% The annual rate of inflation during the period was 2.9%. Compute the real rate of return on these investment alternatives. Invest. Category Rate of Return Rate of Inflation Real Rate of Return(return - Inflation) U.S. Gov. T-Bills 3.50% 2.90% 0.60% Lg.-cap CS 12.10% 2.90% 9.20% L.T. Corp. Bonds 6.20% 2.90% 3.30% L.T. Gov. Bonds 5.60% 2.90% 2.70% Small-Cap. CS 14.60% 2.90% 11.70% 2. The following are the monthly rates of return for Nike and JNJ Using an excel spreadsheet, compute the following: a. Average monthly rate of return for each stock b. Standard deviation of returns for each stock c. Covariance between the rates of return d. The correlation coefficient between the rates of return Month Nike JNJ 1 -5% 8% 2 3% -1% 3 -6% -2% 4 9% 11% 5 -2% -4% 6 3% 6% Mean 33% 3% Standard Deviation 5.72% 6.13% Covariance 0.00146667 Correlation Coefficient 0.50218801 3. Based on five years of monthly data, you derive the following information for the companies listed: a. Compute the beta coefficient for each stock b. Assuming a risk free rate of 5 percent and an...
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...Modern Portfolio Theory in the Modern Economy: MPT During the Credit Crisis 0f 2008 Abstract There are various theories of risk and return as it pertains to measuring and predicting investment return in a portfolio- one of the oldest and most prominent being Modern Portfolio Theory .An example of a hypothetical portfolio utilizing the principles of MPT invested during the credit crisis of late 2008/early 2009 will be utilized in part. In direct application, does Modern Portfolio theory hold strong during a major financial crisis? Past research will be compared to present the mechanics and applications of MPT order to answer the questions poised and to create hypothetical portfolios based on past fund performance during the time period of 2007 -2010. It is expected that a portfolio using MPT would not have performed significantly better than any other less diversified investment. Contents Introduction……………………………………..........................................................................4-7 Credit Crisis Thesis Statement Modern Portfolio Defined Prior Research Prediction Method…………………………………………………….........................................................8-9 Parameters/ Source of Portfolios Results……………………………………………………......................................................10-19 A. Application/ graphs Conclusion…………………………………………...............………………………............19-20 Restatement of Thesis Discussion of Results Limitations Recommendation References……………………………………………………………………...
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...ในพอร์ตการลงทุนที่เขาบริหารจัดการอยู่นั้น ควรซื้อหุ้น PioneerGypsumหรือGlobal Miningในสัดส่วนเท่าไหร่ จึงจะสามารถได้ผลตอบแทนที่สูงบนพื้นฐานความเสี่ยงที่เหมาะสม ซึ่งแต่เดิม John ไม่ได้ทำการกระจายการลงทุน (Diversified) โดยทำการวิเคราะห์จากการคำนวณหา Expected Return, Risk Premium และคำนวณ Standard Deviationเพื่อนำไปคำนวณหา Sharpe Ratio ที่มีอัตราส่วนที่สูงที่สุด ซึ่งอธิบายถึงผลตอบแทนที่ถูกปรับด้วยความเสี่ยง ที่ดีที่สุด เมื่อได้ทำการวิเคราะห์และคำนวณ Sharpe Ratio แล้ว พบว่า หุ้นที่เหมาะสมที่จะทำการลงทุนเพิ่ม ได้แก่ Pioneer Gypsum โดยลงทุนในสัดส่วน 4% จึงทำให้การลงทุนในตลาดเป็น 96% เนื่องจากเป็นสัดส่วนที่ทำให้ Sharpe Ratio มีค่าสูงที่สุด คือ 0.4702 ซึ่งถือได้ว่าเป็นการกระจายการลงทุนที่ทำให้ความเสี่ยงลดลง ซึ่งสอดคล้องกับทฤษฎี Modern Portfolio Theory ของ Harry M. Markowitz (1952) ที่กล่าวไว้ว่า “Don’t put all your eggs in one basket” สรุปรายละเอียดของ Mini-Case : John & Marsha on Portfolio Selection John ทำหน้าที่บริหาร Portfolio ซึ่งมีมูลค่า 125 ล้านดอลลาร์ของนักลงทุนอยู่ เขาปรึกษากับ Marsha เกี่ยวกับปัญหาของการบริหารจัดการหุ้นใน Portfolio ของเขา โดย John คิดว่าที่ผ่านมาผลตอบแทนจาก portfolio ที่เขาดูแลอยู่นั้นมักจะใกล้เคียงกับอัตราผลตอบแทนของตลาดและอิงจากกราฟ S&P 500 market index ที่จัดทำขึ้น เขาจึงรู้สึกว่าการบริหารของเขาอ้างอิงแต่กับตัวเลขของตลาดมากเกินไป เขาอยากจะบริหารจัดการ portfolio เสียใหม่ให้มีความเป็นตัวของตัวเองมากขึ้น และได้รับผลตอบแทนที่สูงขึ้นกว่าอัตราผลตอบแทนของตลาด เพื่อทำให้การทำงานของเขามีประโยชน์ต่อลูกค้ามากขึ้น โดยเขาเลือกบริษัทที่ราคาตลาดของหุ้นต่ำกว่ามูลค่าที่ประเมินได้ (Undervalued) และที่ราคาตลาดของหุ้นสูงกว่ามูลค่าหุ้นที่ประเมินได้...
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... ABSTRACT This article attempts to measure performance of three stock-based mutual funds in Indonesia over the period of January 1, 2015 – July 30, 2015 using daily data. Each of the stock-based mutual fund was picked randomly from foreign, SOE, and local investment houses. The performance evaluation employs different methods namely Sharpe, Treynor, and Jensen indices. Analysis revealed that different methods yield different result. In order to enrich evaluation, Modigliani-risk adjusted performance metric and qualitative approach were included in the analysis. By using the mix criteria, it was found that the best investment is Schoder 90 Plus Equity Fund followed by Manulife Dana Saham and Mandiri Investa Dynamic Equity. This findings show that even though stock market performed negatively over the period, stock-based mutual fund may yield slightly better than the market. Key Words: Mutual Fund, Sharpe Index, Treynor Index, Jansen Index, M2. I. INTRODUCTION This paper aims at measuring portfolio performance of stock-based mutual funds from three different investment manager over the period of January 1, 2015 – July 30, 2015. Three randomly mutual fund was chosen, namely Schoder 90 Plus Equity Fund (Schroder Investment Management Indonesia), Mandiri Investa Dynamic Equity (Mandiri Manajemen Investasi), and Manulife Dana Saham (Manulife Aset Manajemen Indonesia). In the first step, all mutual funds data evaluated using Sharpe, Treynor, and Jensen indices. In the...
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...Course (UOP) For more course tutorials visit www.tutorialrank.com FIS 240 Week 1 CheckPoint: Is Time on My Side (UOP) FIS 240 Week 1 DQs (UOP) FIS 240 Week 2 CheckPoint: Risk Assessment Matrix (UOP) FIS 240 Week 2 Exercise: Risk and Reward: First 10% (UOP) FIS 240 Week 2 Assignment: What’s In It for Me? (UOP) FIS 240 Week 3 DQs (UOP) FIS 240 Week 3 CheckPoint: Primary and Secondary…Not Just Schools (UOP) FIS 240 Week 4 CheckPoint: Investment Comparison Problems (UOP) FIS 240 Week 4 Assignment: Embracing Diversity (UOP) FIS 240 Week 5 CheckPoint: Rock, Paper, Scissors, and Other Investment Techniques (UOP) FIS 240 Week 5 DQs (UOP) FIS 240 Week 6 CheckPoint: So Many Businesses, So Little Money PART 1 OF 2 (UOP) FIS 240 Week 6 CheckPoint: So Many Businesses, So Little Money PART 2 OF 2 (UOP) FIS 240 Week 6 Assignment: Analyze This (UOP) FIS 240 Week 7 DQs (UOP) FIS 240 Week 7 CheckPoint: Income that Sticks PART 1 OF 2 (UOP) FIS 240 Week 7 CheckPoint: Income that Sticks PART 2 OF 2 (UOP) FIS 240 Week 8 CheckPoint: Lifetime Investment Matrix PART 1 OF 2 (UOP) FIS 240 Week 8 CheckPoint: Lifetime Investment Matrix PART 2 OF 2 (UOP) FIS 240 Week 8 Assignment: Living the Easy Life (UOP) FIS 240 Capstone Discussion Question (UOP) FIS 240 Final Project: Investment Policy and Portfolio Evaluation (UOP) ____________________________________________________ FIS 240 Week 1 CheckPoint: Is Time on My Side (UOP) For more course tutorials visit www.tutorialrank...
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...complete. American Funds Capital World Growth/Income Symbol- RWIFX Class R-5 Current price- $36.29 52 week range - $30.82-36.90 Expenses – 0.5% Management fees 0.38% Other expenses – 0.12% Type of Fund: open-ended fund. Class R shares are generally available only to retirement plans. Class R-5 are generally available only to fee-based programs or through retirement plan intermediaries. No dealer compensation is paid from fund assets on sales of Class R-5 or R-6 shares. I like that the expenses are low. It is a lower risk fund. Although it is a growth fund, it doesn’t seem to fluctuate that much. American Funds Capital World G/I R5 (RWIFX) 36.29 0.08(0.22%) Nov 27 Add to Portfolio Risk as of Oct 30, 2012 Get Risk for: Risk Overview Morningstar Risk Rating: 3 Number of Years Up 7 Number of Years Down 2 Best 1 Yr Total Return(Dec 30, 2003): 39.47% Worst 1 Yr Total Return(Dec 30, 2008): -38.21% Risk (Modern Portfolio Theory) Statistics 3 Years Statistic RWIFX Category Alpha (against Standard Index) 4.13 5.19 Beta (against Standard Index) 0.87 0.85 Mean Annual Return 0.68 0.76 R-squared (against Standard Index) 95.16 86.55 Standard Deviation 17.40 17.88 Sharpe Ratio 0.47 0.53 Treynor Ratio 7.89 10.04 5 Years Statistic RWIFX Category Alpha (against Standard Index) 2.91 2.36 Beta (against Standard Index) 0.87 0.89 Mean Annual Return 0.02 -0.03 R-squared (against Standard Index) 96.30 89.30 Standard Deviation 20.80 22.04...
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... 32-33). The concepts a business uses are as follows: “The Risk/Return Tradeoff,” “Diversification,” “Dollar Cost Averaging,” “Asset Allocation,” “Random Walk Theory,” “Efficient Market Hypothesis,” “The Optimal Portfolio,” and “Capital Asset Pricing Model” (Investopedia, 2010, p. 1-8). The Risk/Return Tradeoff concept is also known by another name. This name is “the ability-to-sleep-at-night-test.” Although some individuals can deal with the ups and downs of the financial market, some fear that they may fall off the ladder. With this, the investment’s risk will come into play. The company needs to decide how much risk will be necessary for them to be comfortable with their investments. The definition of risk in the investing world is the chance that in point of fact the return on the investment will be different from expected. Standard Deviation in statistics is the measurement used in this instant. In other words, risk means that there is a possibility of losing part or all of the original investment. So if this is the meaning of risk, then risk/return tradeoff means that there must be a balance between the lowest of risk and the highest of return (Investopedia, 2010). Diversification is another concept that the business uses. This is a technique that is used to mix a wide variety of investments that can be found in a portfolio to minimize the impact that any of the securities that can be found in a portfolio will have on the performance of that same investment....
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...INDUSTRY PROFILE Journey of Indian stock market Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century. By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60.In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which...
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...Information technology are evaluated using a score card which will be used to establish a portfolio Application Model Matrix which will be used in comparing the projects, some of the proposed infrastructure projects for MDSCM include standard computing hardware and software, website and data warehousing. The website is the project with the highest likelihood to succeed and also will add value to the business. Introduction: The following is a summary of the information technology projects appropriate for the MDCM Company, IT infrastructure required include networking, standard computing hardware and software, data warehousing, messaging system and a website. A score card is also established in order evaluate each project and these scores are represented in a Portfolio Application Model Matrix. IT infrastructure: Networking: This project involves the use of internet and networking resources available to enable the sharing of information across the subsidiaries and also within the subsidiaries, networking will improve quality of products given that it will enable sharing of information with the various departments and subsidiaries and therefore add value to products. Computing hardware and software: According to the case study the company different hardware platform systems including AIX, UNIX, Windows NT, windows 2000, adoption of a standardized operating system will help reduce both support costs and maintenance costs. This will enable the company gain competitive advantage...
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