Corporate Finance Management FINN 3103

Assignment on Portfolio Creation
Introduction
The report aims to present financial performance of 10 stocks/ securities/ bonds. ETFs etc over …

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Assignment on Portfolio Creation
Introduction
The report aims to present financial performance of 10 stocks/ securities/ bonds. ETFs etc over the period of 84 months and analyse the return.
For the purpose of analysis, the time period has been divided into two period namely pre part comprising time frame 01-01-2015 to 31-12-2019
and post part comprising time frame 01-01-2020 to 31-12-2021. The securities have been selected from diverse field/ sector for the purpose of
diversification and minimisation of risk and for evaluating the risk return profile of the portfolio.
Security Selection
Security has been selected from diverse background and the classification of the securities are as under:
Apple Inc Alphabet Inc. General Motors JP Morgan Chase & CO Bank of America Corporation Wells Fargo & CO
iShares Europe ETF iShares GSCI Commodity Dynamic Roll Strategy ETF T. Rowe Price Institutional Long Duration Credit Fund
Vanguard Long-Term Corporate Bond Index Fund Institutional Shares
Ticker AAPL GOOG GM JPM BAC WFC IEV COMT RPLCX VLCIX
Category Equity Equity Equity Equity Equity Equity ETF Commodity Bond & Mutual Fund Bond
Out of the above securities some securities are mixed i.e. they satisfy many criteria of portfolio creation. For instance, IEV, which is iShares
Europe ETF, meets both ETF and international market focus requirements. COMT, which is iShares Commodities Select Strategy ETF, meets
both commodity and ETF requirements. RPLCX, which is T.Rowe Price Institutional long duration, meets both bond and mutual fund
requirements.
Performance Analysis
The performance analysis of the 10 securities over the past 5 years has been presented as under:
AAPL GOOG GM JPM BAC WFC IEV COMT RPLCX VLCIX
Monthly Return 2.52% 2.26% 1.12% 1.51% 1.66% 0.23% 0.39% -0.12% 0.01% 0.15%
Annual Return 30.24% 27.15% 13.48% 18.17% 19.90% 2.72% 4.74% -1.40% 0.15% 1.79%
SD- Monthly 8.15% 6.51% 9.14% 6.62% 8.42% 7.99% 4.56% 5.34% 2.81% 2.70%
SD- Annual 28.22% 22.55% 31.65% 22.93% 29.18% 27.68% 15.81% 18.49% 9.73% 9.35%
On the basis of above computation, it may be inferred that best performing security is Apple and has provided a very strong return on monthly
and annual basis. On the other hand, the worst performing security is COMT which has generated negative return over the period of 5 year on
monthly basis. On the basis of risk return trade off the best performing stock is Apple Inc. Thus, majorly stocks have performed well compared
to other categories of security.
Correlation
The correlation analysis of the stocks has been presented as under:
AAPL GOOG GM JPM BAC WFC IEV COMT RPLCX VLCIX
AAPL 1
GOOG 0.441735 1
GM 0.332446 0.385246 1
JPM 0.272938 0.412056 0.57858 1
BAC 0.314787 0.480857 0.559498 0.91717 1
WFC 0.185947 0.422928 0.535255 0.810825 0.812185 1
IEV 0.465166 0.583127 0.521669 0.67425 0.658737 0.623174 1
COMT 0.297328 0.229223 0.475585 0.593832 0.529565 0.541237 0.597831 1
RPLCX 0.197862 0.267926 0.072763 -0.03024 -0.00394 0.046409 0.270287 0.103038 1
VLCIX 0.271101 0.304403 0.097389 0.060478 0.082466 0.106062 0.384429 0.162261 0.9151 1
Based on above data it may be inferred that there is weak correlation and RPLCX exhibits negative correlation with many securities and thus portfolio can
be diversified by adding these stocks as they dont exhibit strong correlation.
Portfolio Analysis and comparison
Equal weighted portfolio has been created both for pre period and post period and the return earned in pre period stood at 0.79% on monthly basis, 9.49%
on annual basis, 0.12% Standard deviation on monthly basis and 0.43% standard deviation on annual basis. While for the post period, the results were
1.43% return on monthly basis, 17.10% on annual basis, 0.36% Standard deviation on monthly basis and 01.24% standard deviation on annual basis. Such
drastic changes were on account of onset of pandemic globally and later recovery of the companies post the pandemic which created a market wide strong
upturn. Thus, equal weighted portfolio would have been a good choice as it is diversified and has good risk return.
Further, optimal portfolio with mean variance optimisation has been created and the return earned in pre period stood at 0.72% on monthly basis, 8.60%
on annual basis, 0.05% Standard deviation on monthly basis and 0.16% standard deviation on annual basis. Further, the portfolio generates 5.4% return for
every 1% of risk which is optimal.
The weight allocation of the portfolio is as under:
Part IV
Weight
Return-
Monthly
Return
Annual
AAPL 3% 1.86% 22.29%
GOOG 10% 1.73% 20.79%
GM 0% 0.45% 5.45%
JPM 24% 1.77% 21.26%
BAC 0% 1.73% 20.80%
WFC 0% 0.24% 2.84%
IEV 0% 0.23% 2.76%
COMT 0% -0.15% -1.84%
RPLCX 7% -0.04% -0.52%
VLCIX 55% 0.09% 1.10%
Total 100%
Month Return 0.72%
Annual return 8.60%
Monthly SD 0.05%
Annual SD 0.16%
Max 5426%
Two Stock Portfolio
Two stock portfolio risk return analysis has been presented as under:
AAPL GOOG Risk Return
0 1 5.85% 1.732%
10.0% 90.0% 5.64% 1.745%
20.0% 80.0% 5.52% 1.757%
30.0% 70.0% 5.50% 1.770%
40.0% 60.0% 5.58% 1.782%
50.0% 50.0% 5.74% 1.795%
60.0% 40.0% 5.99% 1.807%
70.0% 30.0% 6.32% 1.820%
80.0% 20.0% 6.71% 1.832%
90.0% 10.0% 7.15% 1.845%
100.0% 0.0% 7.64% 1.857%
Global Minimum
Variance 27.3% 72.7% 5.50% 1.766%
Maxim Mean
Variance 31.3% 68.7% 5.51% 1.771%
The return of two stock portfolio is 1.766% and the risk is 5.5% on monthly basis at global minimum variance situation and maximum mean variance the
return stood at 1.771% and the risk at 5.51%.
Further, in the post period the results were as under:
2 Year
AAPL GOOG
Monthly
Return 4.15% 3.57%
Annual Return 49.79% 42.79%
SD- Monthly 9.26% 7.90%
SD- Annual 32.07% 27.37%
Correlation 0.476396
Global
Minimum
Variance
Weight 0.272702 0.727298
Return 0.037248
SD 0.072945
Mean Variance
Weight 0.313034 0.686966
Return 0.037483
SD 0.072691
In the post period the returns of the portfolio has improved under both the case
Rationale for Increase
In the post pandemic period the results have depicted an exceptional rise on account of good results, positive economic recovery and market sentiments
around the stock. Thus, market sentiments led to rise in prices.
Benchmark
NASDAQ shall be the best benchmark as it is diversified and majority security are selected from the Index and the portfolio has outperformed the index.
Conclusion
Based on above discussion, it may be inferred that the market has increased well in the post period as compared to pre period and it shall be beneficial for
the investor to keep an equal weighted portfolio as it is diversified and provides good return at lower risk to the investor. Further, the risk return trade off
shall be optimal in case portfolio created under Part VI and the investor may also keep the same and the results shall be higher. Also, the performance of
the portfolio has outperformed the comparable index over the given time frame.

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