Date post: | 18-Aug-2015 |
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Economy & Finance |
Upload: | marina-sedrakyan |
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PORTFOLIO ANALYSIS:
Asmik Akhverdyan
Ruzanna Ayvazyan
Davit Matevosyan Mariam Petrosyan
Marina Sedrakyan 1
Dow jones IT and Banking componentsDow jones IT and Banking components
Prof. Grigoryan
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Risk represents uncertainty of a return and the potential for financial loss.
Measures of risk:
•Range
•Mean absolute deviation
•Variance (standard deviation)
•Coefficient of variation
Return on an investment is the financial outcome for the investor.
An investment’s distribution of returns follows a normal distribution
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Assets with higher return are always riskier
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• Diversifiable Risk versus Market Risk /Systematic and Unsystematic Risks/
• Market Risk: Beta Risk• Other Risks
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Beginning with one stock and adding randomly selected stocks to portfolio
• Diversifiable risk decreases as stocks added, because they would not be perfectly correlated with the existing portfolio.
• Expected return of the portfolio would remain relatively constant.
• Eventually the diversification benefits of adding more stocks dissipates (after about 10 stocks)
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Stand-alone risk = Market risk + Diversifiable risk
• Market risk – portion of a stock’s stand-alone risk that cannot be eliminated through diversification. Measured by beta.
• Diversifiable risk – portion of a stock’s stand-alone risk that can be eliminated through proper diversification.
# Stocks in Portfolio10 20 30 40 2,000+
Diversifiable Risk
Market Risk
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0
Stand-Alone Risk, p
p (%)35
Diversification effects of a stock portfolio
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Other Risks
• Different currency denominations • Political risk• Economic and legal ramifications• Role of governments• Language and cultural differences
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• Why do investors prefer portfolios?
• What is a feasible portfolio?
• What is an optimal portfolio?
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• Second oldest stock index
• Price-weighted average
• Includes 30 components
• The components are selected by the WSJ
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Regression Statistics for IT
Multiple R 0,79184
R Square 0,627011
Adjusted R Square 0,623991
Standard Error 0,004165
Observations 251
Regression Statistics for Banking
Multiple R 0,392918115
R Square 0,154384645
Adjusted R Square 0,147565166
Standard Error 0,00616765
Observations 251
Regression Statistics for HP
Multiple R 0,288077233
R Square 0,082988492
Adjusted R Square 0,075563298
Standard Error 0,006530247
Observations 251
DJ=0,0027-0,003*i-0,001WRDJ=-0,566+0,129*i +0,665*WR
DJ=-0,3287+0,085*i+0,161*HR
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Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 0,0027154 0,0019136 1,419025013 0,1571473 -0,0010535 0,0064845
i -0,0031343 0,0004778 -6,55884033 3,13175E-10 -0,004076 -0,002193
WR -0,0010849 0,0012583 0,862237592 0,03893898 -0,0035632 0,0139335
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept -0,5658546 0,130166769 -4,3471511 2,02E-05 -0,822233 -0,30948
i 0,1290238 0,08489222 1,51985399 0,129827 -0,038182 0,296229
WR 0,6648816 0,032822503 2,25688175 2,03E-54 0,600234 0,729529
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept -0,3287197 0,203257181 -1,61726 0,107099 -0,7290581 0,071618637
i 0,0847991 0,018788707 4,513298 9,88E-06 0,0047792 0,0121805
HR 0,161222659 0,133158229 1,21076 0,022714 -0,0101048 0,0423497
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Root Mean Squared Error 0.4
Theil Inequality Coefficient 0.32
2m
imi
- co-variation of stock and market
- coefficient of dispersion of market return
> 1, stock is more risky < 1, less sensitive to market changes
= 1, the same risk level as the market
im
2m
Measure of the risk contribution of an individual
security to a well-diversified portfolio.
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Markowitz’s Portfolio theory
Sharp, Treynor…
R=Rf + β*(RM-Rf)RM= Rf + Risk premium
R is the expected return on security,
Rf is the risk free rate
β is beta of the security25
WR=0.009*RP
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R-Squared 62.3%
Coefficient β 0.009
P-value (Sig. t) 0.0000 < 0.05
P-value
Weighted banking=0.004*RP
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R-Squared 14.9%
Coefficient β 0.004
P-value (Sig. t) 0.0000 < 0.05
P-value
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29P-values for all the regressions were < 0.05 which means H0 is rejected and Ha is accepted.
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Sharp Ratio Treynor Ratio
IT Banking
Sharp 0.58 0.21
Treynor 51 43
𝑇𝑟𝑒𝑦𝑛𝑜𝑟 𝑖𝑛𝑑𝑒𝑥= (𝑅𝑃 − 𝑅)𝛽 𝑆ℎ𝑎𝑟𝑝 𝑖𝑛𝑑𝑒𝑥= (𝑅𝑃− 𝑅)𝑠𝑡.𝑑𝑒𝑣
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