DATA ANALYSISUndiversified portfolioCompany name20072008200920102011

P0(Rs)P1(Rs)Po(Rs)P1(Rs)P0(Rs)P1(Rs)Po(Rs)P1(Rs)Po(Rs)P1(Rs)

SBIN979.401600.2516051067.101076.152078.2020802765.302765.3010360

IDBI7089.1090.1045.4046115115.25142.45143.40104.70

AXIS469.95789.85809414.954201168.2511681403.851410.301146.2

BATLIBOI9741.3541.6013.201328.552922.4523.8015.6

INDUSIND4078.658032.1033170.10171263.15262.15250.15

Where: - P0 =stock price of the company at the beginning of the year; P1= stock price of the company at the ending of the year.Note;- Stock prices are taken from the past 5 years data( i.e. from 1st April 2007 to 31st march 2008).Calculated Risk and Return on each stockCompany NameReturn (%)Risk (%)

SBIN86.11103.19

IDBI24.8569.13

AXIS39.7979.47

BATLIBOI-12.6168.06

INDUSIND104.57163.55

Interpretation:From the above calculations and diagram we can say that stock of Indusindbk has high returns and BOI give negative return because of fall in stock price in 2008. IDBI has less risk compared to other stocks and it is mainly because of volatility of stock prices i.e. sudden rise in stock prices of SBIN and indusindbk in 2011 and fall in stock price of IDBI in the year 2011.

Calculation of correlation between two different stocks Calculation of correlation between SBIN and IDBI ( R1,2 ) Calculation of correlation between SBIN and AXIS ( R1,3 ) Calculation of correlation between SBIN and BOI ( R1,4) Calculation of correlation between SBIN and INDUSINDBK ( R1,5)CovarianceCorrelation

SBIN and IDBI7133.5247+1

SBIN and AXIS8200.50+1

SBIN and BOI7023.11+1

SBIN and INDUSINDBK16876.72+1

Calculation of correlation between IDBI and AXIS ( R2,3 ) Calculation of correlation between IDBI and BOI ( R2,4 ) Calculation of correlation between IDBI and INDUSINDBK( R2,5 )CovarianceCorrelation

IDBI & AXIS5493.76+1

IDBI & BOI4704.98+1

IDBI & INDUSINDBK11306.21+1

Calculation of correlation between AXIS and BOI ( R3,4 ) Calculation of correlation between AXIS and INDUSINDBK( R3,5 )CovarianceCorrelation

AXIS & BOI5408.72+1

AXIS & INDUSINDBK12997.31+1

Calculation of correlation between BOI and INDUSINDBK ( R4,5 )CovarianceCorrelation

BOI & INDUSINDBK11131.21+1

Calculation of portfolio Risk and Return Calculation of expected returns on portfolio:Expected Return [E (R p)] = (0.20X86.11) + (0.20X24.85) + (0.20X39.79) + (0.20X-12.61) + (0.20X104.57) = 48.53% Calculation of expected risk on the portfolio: P = (0.2)2 x (103.19)2 + (0.2)2 x (69.13)2 + (0.2)2 x (79.47)2 + (0.2)2 x (68.06)2 + (0.2)2 x (163.55)2 + 2 (0.2) (0.2) (103.19) (69.13) (1)+ 2 (0.2) (0.2) (103.19) (79.47) (-1)+ 2 (0.2) (0.2) (103.19) (68.06) (-1)+ 2 (0.2) (0.2) (103.19) (163.55) (-1)+ 2 (0.2) (0.2) (69.13) (79.47) (-1)+ 2 (0.2) (0.2) (69.13) (68.06) (-1)+ 2 (0.2) (0.2) (69.13) (163.55) (-1)+ 2 (0.2) (0.2) (79.47) (68.06) (-1)+ 2 (0.2) (0.2) (79.47) (163.55) (-1)+ 2 (0.2) (0.2) (68.06) (163.55) (-1) = 95.93%

CASE-I Diversification according to industryDiversified portfolioCompany name20072008200920102011

P0(Rs)P1(Rs)Po(Rs)P1(Rs)P0(Rs)P1(Rs)Po(Rs)P1(Rs)Po(Rs)P1(Rs)

AXIS469.95789.85809414.954201168.2511681403.851410.301146.2

DLF526.60645.75658167.30167.30308.90311268.55267.45201.75

TATAPOW5201171.501190768.60768.751373.6513851335.151325.10100.95

TCS1210810.45820538.55536780.65786.351183.9011851168.80

CIPLA234220223.40220.05218.50338.35339321.65322.90305.10

Where: - P0 =stock price of the company at the beginning of the year; P1= stock price of the company at the ending of the year.

Calculated Risk and Return on each stockCompany NameReturn (%)Risk (%)

AXIS39.7979.47

DLF-1.0952.90

TATAPOW14.5178.27

TCS5.4936.75

CIPLA7.3523.80

Interpretation:From the above calculations and diagram we can say that all stock have high risk than there return this is due to continuous fluctuation in stock price. DLF has shown a negative return due to huge fall in price of stock price in 2008.Axis bank is more risk and return than other stocks. Tata power has return till 2010 but fall in stock price in 2011 make huge difference.

Calculation of correlation between two different stocks Calculation of correlation between AXIS and DLF ( R1,2 ) Calculation of correlation between AXIS and TATAPOWER ( R1,3 ) Calculation of correlation between AXIS and TCS ( R1,4) Calculation of correlation between AXIS and CIPLA ( R1,5)CovarianceCorrelation

AXIS and DLF4203.96+1

AXIS and TATAPOWER6220.11+1

AXIS and TCS2920.52-1

AXIS and CIPLA1891.38-1

Calculation of correlation between DLF and TATAPOWER ( R2,3 ) Calculation of correlation between DLF and TCS ( R2,4 ) Calculation of correlation between DLF and CIPLA( R2,5 )CovarianceCorrelation

DLF & TATAPOWER4140.48+1

DLF & TCS1944.07-1

DLF & CIPLA1259.02-1

Calculation of correlation between TATAPOWER and TCS( R3,4 ) Calculation of correlation between TATAPOWER and CIPLA( R3,5 )CovarianceCorrelation

TATAPOWER & TCS2876.42+1

TATAPOWER & CIPLA1862.82-1

Calculation of correlation between TCS and CIPLA ( R4,5 )CovarianceCorrelation

TCS & CIPLA874.65-1

Calculation of portfolio Risk and Return Calculation of expected returns on portfolio:Expected Return [E (R p)] = (0.20X39.79) + (0.20X-1.09) + (0.20X14.51) + (0.20X5.49) + (0.20X7.35) = 13.19 % Calculation of expected risk on the portfolio:

P = (0.2)2 x (79.47)2 + (0.2)2 x (52.90)2 + (0.2)2 x (78.27)2 + (0.2)2 x (36.75)2 + (0.2)2 x (23.80)2 + 2 (0.2) (0.2) (36.75) (44.29) (1)+ 2 (0.2) (0.2) (36.75) (86.19) (1)+ 2 (0.2) (0.2) (36.75) (103.74) (-1)+ 2 (0.2) (0.2) (36.75) (110.53) (1)+ 2 (0.2) (0.2) (44.29) (86.19) (-1)+ 2 (0.2) (0.2) (44.29) (103.74) (-1)+ 2 (0.2) (0.2) (44.29) (110.53) (-1)+ 2 (0.2) (0.2) (86.19) (103.74) (+1)+ 2 (0.2) (0.2) (86.19) (110.53) (-1)+ 2 (0.2) (0.2) (103.74) (110.53) (-1) = 16.83%CASE-II Diversification according to industry and bondsDiversified portfolioCompany name20072008200920102011

P0(Rs)P1(Rs)Po(Rs)P1(Rs)P0(Rs)P1(Rs)Po(Rs)P1(Rs)Po(Rs)P1(Rs)

SBIN979.401600.2516051067.101076.152078.2020802765.302765.3010360

INFOSYSTEC20001439.91445.101323.901331.152615.952620.203241.303235.102866.30

BOIPurchased 7.10% BOI sector scheme fund.

ALLAHABAD BANKPurchased 8% Allahabad bank sector scheme fund.

SBIN BONDSPurchased 9.85% Sbi bank bond scheme fund.

Where: - P0 =stock price of the company at the beginning of the year; P1= stock price of the company at the ending of the year.Calculated Risk and Return on each stockCompany NameReturn (%)Risk (%)

SBIN86.11103.19

INFOSYSTEC14.4844.29

BOI7.10%0(assumed)

ALLAHABAD BANK8%0(assumed)

SBIN BOND9.85%0(assumed)

Note: - Since, there are no deviations in the returns of 7.10% co BOI bond, 8% Allahabad bank scheme fund, and SBIN bonds the Risk is assumed to be zero (0). And the correlation between other pairs of asset is zero (0).

Calculation of correlation between two different stocks Calculation of correlation between SBIN and INFOSYSTEC( R1,2 ) CovarianceCorrelation

SBIN & INFOSYSTEC4570.28+1

Calculation of portfolio Risk and Return Calculation of expected returns on portfolio:Expected Return [E (R p)] = (0.20X86.11) + (0.20X14.48) + (0.20X7.10) + (0.20X 8) + (0.20X 9.85) = 25.10% Calculation of expected risk on the portfolio:

P = (0.2)2 x (103.19)2 + (0.2)2 x (44.29)2 + 2 (0.2) (0.2) (103.19) (44.29) (1)

= 64.50%

Interpretation ParticularsReturns (%)Risk (%)

Undiversified portfolioDiversified portfolioCase I- diversification according to industryCase II- diversification of equity and debt.

48.53

13.19

25.10

95.93

16.83

64.50

Fig-4.4

FINDINGS The diversified portfolios Case I, Case II, have higher returns compared to undiversified portfolio. The undiversified portfolio has higher risk than diversified portfolio (Case I, Case II) The returns increased in diversified portfolios are : - Case I by -7.28% (i.e. (13.19 48.53 / 48.53) X 100; Case II by 5.41% (i.e. (51.16 48.53 / 48.53) X 100; The Risk eliminated in diversified portfolios are : - Case I by 469.% (i.e. (95.93 16.83 / 16.83) X 100; Case II by 48.70% (i.e. (95.93 64.50 / 64.53) X 100; The correlation between all the stocks of undiversified portfolio is +1, which show that all the stocks react in same manner i.e. in positive or in negative trend. In Case I Stock of SBIN is negatively correlated to other industry stock. This shows that, investors have good faith on banking industry as compared to other industry stock like pharmacy, IT, Infra, power etc The risk in case of Case I is eliminated by 469%.% as a result the return decreased by -7.28% In Case II, though all the stocks are positively and negative correlated, the risk is eliminated by 64.50 % and as a result the returns increased by 25.10%. This shows that even if the risk is reduced by small percentage, the returns can be increased by good percentage and this is possible only if portfolio is constructed with equity and debt.

SUGGESTIONS The investor must see that he is not attracted by the so called hot sectors and move all his stocks to that sector, because the conditions may at any point turn against him and since he has put all his eggs in one basket he may end up with no money. For further diversification investor has to, Own stocks in different industry (even different countries) and in different size company. Spread his portfolio over large, medium and small companies in a variety of industries. Spread his investments over different asset classes such as bond, cash, real estate, precious metals and other alternative investments. The investor should be aware of market or economic influences that may adversely affect the portfolio. If investor have certain level of investment expertise and capable of analyzing companies, perhaps it is best for him not to diversify excessively in the beginning. Even though he doesnt have such expertise or capabilities, hiring a great advisor will do as well.

CONCLUSIONS Portfolio construction reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize returns by investing in different areas that would each react differently to the same event, mean if market is down one sector is got effect not all. Investing in portfolio of equity and debt not only rescuer the investment but also reduce the risk this portfolio give slow return because of bond but equity share will give the frequent return . Diversification can help an investor manage risk and reduce the volatility of an assets price movement. Remember though, that no matter how diversified the portfolio is, risk can never be eliminated completely. Investor can reduce risk associated with individual stocks, but general market risks affect nearly every stock, so it is important to diversify also among different asset classes. The key is to find a medium between risk and return; this ensures that investor have achieved his financial goals while still getting a good nights rest. Finally to conclude dont put all your eggs in one basket and dont put all your baskets in the same wagon.

BIBLIOGRAPHY BOOKS PUNITHAVATHY PANDIAN, Security analysis and portfolio management, Vikas publishing House Pvt Ltd, 4th edition, 2009. M.K.KHAN & P.K.JAIN, Financial management, Tata McGraw-hill publishing company limited, 5th Edition, 2008. WEB REFERENCE www.nseindia.com www.indiabullion.com www.google.co.in

Chart139.7979.47-1.0952.914.5178.275.4936.757.3523.8

Return (%)Risk (%)

Sheet1Company NameReturn (%)Risk (%)AXIS39.7979.47DLF-1.0952.9TATAPOW14.5178.27TCS5.4936.75CIPLA7.3523.8To resize chart data range, drag lower right corner of range.

Chart186.11103.19SBIN14.4844.29INFOSYSTEC0.0710BOI0.080ALLAHABAD BANK0.09850SBIN BOND

Return (%)Risk (%)Column1

Sheet1Company NameReturn (%)Risk (%)Column1SBIN86.11103.19INFOSYSTEC14.4844.29BOI7.10%0(assumed)ALLAHABAD BANK8%0(assumed)SBIN BOND9.85%0(assumed)To resize chart data range, drag lower right corner of range.

Chart148.5395.93Undiversified portfolio13.1916.83Case I-25.164.5Case II-...

Returns (%)Risk (%)Column2

Sheet1Column1Returns (%)Risk (%)Column2Undiversified portfolio48.5395.93Case I-13.1916.83Case II-25.164.5.To resize chart data range, drag lower right corner of range.