Portfolio Management

PORTFOLIO

“It is not enough to invest in many securities, it is necessary to have the

right securities”

Covariance

OR

Coefficient of correlation

Risk and return features of an individual asset

Risk and return of a portfolio

Portfolio analysis and selection

An investor should follow two criteria

Selection of Optimal Portfolio

Traditional Portfolio Analysis

Mean vs. Expected

Expected Return of a Portfolio

Portfolio effect in the two securities case

Markowitz diversification and classification of risks

Risk of Portfolio (p)

The Dominance Principle

Dominance Principle Example

B. Diversification

Risk

Diversification

Random Diversification and Efficient Diversification

3. Markowitz Diversification

3. Markowitz Diversification (continued)

3. Markowitz Diversification (continued)

3. Markowitz Diversification (continued)

Perfect Positive Correlation

Perfect Positive Correlation (continued)

Perfect Positive Correlation (continued)

Zero Correlation

Zero Correlation (continued)

Negative Correlation

Negative Correlation (continued)

Example

Markowitz Diversification

CRUX

Example to clarify shapes of curves