SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
TOPICPORTFOLIO ANALYSIS SELECTION; PORTFOLIO
THEORY, RETURN PORTFOLIO RISK, EFFICIENT SET OF PORTFOLIOS, OPTIMUM PORFOLIO.
CONTENTSPORTFOLIO MEANINGPHASES OF PORTFOLIOMARKOWITZ MODELMARKOWITZ MEAN VARIANCE MODELEFFICIENT FRONTIREEFFICIENT SET OF PORTFOLIOSETTING OF PORTFOLIODIVERSIFICATIONDIVERSIFICATION OF RISKOPYIMUM PORTFOLIOEXCEPTED RETURN ON PORTFOLIO
MEANING;PORTFOLIOIt is a collection or combination of financial
assets( shares, debentures, government securities)
It can also be called collection of physical asstets(gold,silver,,real estate etc).
Here, it is used for” investment purpose” and not for consumption.
PHASES OF PORTFOLIOSecurity analysisPortfolio analysisPortfolio selectionPortfolio revisionPortfolio revision
MARKOWITZ MODELModern portfolio theory or portfolio theory
was introduced by harry markowowiz with his paper portfolio selection .
The markowitz model describe a set of rigorous statistical procedures uesd to selest the optimal portfolio for wealth maximizing/ risk-averse investers.
The model is describing under the framework of a risk-return tradeoff graph.
MARKOWITZ MEAN-VARIANCE MODEL ASSUMPTION; the return on investment adequately
summarises the outcome of the investmentAll investers are risk-averse.Investors are assumed to be rational Return could be any suitable measure of
monetary inflowInvestors base their investment decision on
two criteria ;expected return and variance of return
EFFICIENT FRONTIERWHAT IT IS?HOW IT WORKS?WHY IT MATTERS?
DIAGRAM
EFFICIENT SET OF PORTFOLIOIT is the portfolio that offers the highest
excepted return for a given level of risk or one with the lowest level of risk for a excepted return and the line that connect all these efficient portfolios is efficient frontier.
GRAPH
SETTING UP OF PORTFOLIOthe portfolio manager will determine how to
structure the portfolio based on the restriction and guidelines in the portfolio prospectus.
Portfolio prospectus includes; fee investment objective limitation names of the portfolio manager
DIVERSIFICATION why diversify? Higher more consistent return Lower risk a diversified protfolio will hold a number
of securities Diversification is not having all ypur eggs
in one basket Losses in some securities should be offset
by gains in others
How to get the best diversification?Speard your portfolio among multiple
investment vehicles such as cash,stock,mutual fund.
Vary the risk in your securitiesVary your securities by industry
Diversification of riskTWO TYPES OF RISK;1. Systematic risk2. Unsystematic risk
OPTIMUM PORTFOLIOThis comes under the markowitz theory.it
states that the investors will act rationally, always making decision aimed at maximizing their return for their accepatable level of risk.
SELECTION OF OPTIMUM PORTFOLIOStep 1; use the markowitz portfolio selection
model to identify optimal combinationsStep 2; consider riskless borrowing and
lending possibilitiesStep 3; choose the final portfolio based on
your preference for return relatives to risk
EXCEPTED RETURN ON PORTFOLIO The excepted return on portfolio simply
means the weighted average – the excepted return on individual securities in the given portfolio
formula
THANK YOU
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