WELINGKAR (MUMBAI)

SAPM ASSIGNMENT PRASHANT KOLASE (PGDM 2011-13)

ROLL : 95

Fundamental Analysis of Assets in the Portfolio

Indian Hotels Mahindra & Mahindra SBI Polaris

P/E 36.5 14.78 12.32 9.04

P/BV 1.5 3.385 1.67 1.58

RONW 4.40% 25.6 15.7 19.4

ROCE 5.90% 25.4 0 23

EPS 1.80 47.2 170.1 18.1

The Capital Market Line & the Security Market Line

0%

2%

4%

6%

8%

10%

12%

14%

16%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Exp

ect

ed

Re

turn

Standard Deviation of Returns

Capital Market Line

0%

2%

4%

6%

8%

10%

12%

14%

0 0.2 0.4 0.6 0.8 1 1.2 1.4

Re

turn

Beta

Security Market Line

Portfolio Risk & Return

The portfolio risk is 5.26% while the portfolio return comes is 2.49%

The sum is 7.75% which tells us what we could expect in a bull

market.

In a bear market, we could expect -2.77% returns as this is the

difference between the variables.

Capital Asset Pricing Model

We use CAPM to find Jensen’s Alpha:

Variables to be plugged in above

Realized Return 2.49%

Market Return 10.57%

Risk Free Rate 4%

Beta of Portfolio 1.3175

Market Risk Premium 6.57%

Jensen’s Alpha (Calculated)

-10.167%

Comment: Jensen's measure is one of the ways to help determine if a

portfolio is earning the proper return for its level of risk. If the value is positive,

then the portfolio is earning excess returns. In other words, a positive value for

Jensen's alpha means a fund manager has "beat the market" with his or her

stock picking skills.

Portfolio Performance Ratios

Measure Value Remarks

Sharpe Ratio -0.29 - Since the value is less than 1, there is a risk of capital erosion by holding this portfolio.

Sortino Ratio -3.24 - A large Sortino Ratio indicates a low risk of large losses occurring. A large Sortino Ratio indicates a low risk of large losses occurring.

Treynor Ratio -6.13 - The ratio signifies the portfolio performance against the market risk. - A value less than 1 is indicative of inherent risk of capital erosion

R Squared 0.44 - The ratio signifies that the correlation between the portfolio returns & the market returns is moderate & hence the Beta value will not play a significant role in evaluation of the performance

Jenson’s Alpha -10.17% - The portfolio has not been able to outperform the market expectation

Fama & French Model

Fama French Model

Risk Free Rate

4.00%

Compensation for Systematic Risk 8.66%

Compensation for Diversification -7.11%

Net Selectivity

-2.97%

CAPM Return

2.49%

The Compensation for Systemic Risk signifies the compensation for the market

risk inherent in the portfolio. It shows the proportion of return generated by

the portfolio as a reward for the risk born by the manager. Compensation for

Diversification signifies the compensation for the potential downside of

diversification. Net Selectivity signifies the efficiency of the portfolio manager

in terms of selecting the portfolio. Since the factor forms a major proportion of

the total returns generated, the portfolio manager has a significant

contribution to the gains.