# Building a Portfolio using Investment Management Techniques

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```					Investment Management
Portfolio Construction

Submitted by:

Ankit Jain
Investment Management

Introduction

We started the project by selecting some stocks based on our general understanding
of the stock market. We started by selecting 18 stocks for which we found out the
daily returns. We used prowess to find the daily returns for one year starting from
21st July, 2008 to 20th July, 2009. The 18 stocks so selected are:

Aurobindo Pharma Ltd.
Bharti Airtel Ltd.
D L F Ltd.
G M R Infrastructure Ltd.
Hero Honda Motors Ltd.
Hindustan Unilever Ltd.
I C I C I Bank Ltd.
Infosys Technologies Ltd.
N T P C Ltd.
Tata Steel Ltd.
Bharat Heavy Electricals Ltd.
Housing Development Finance Corpn. Ltd.
I T C Ltd.
I V R C L Infrastructures & Projects Ltd.
Idea Cellular Ltd.
Maruti Suzuki India Ltd.
State Bank Of India
Unitech Ltd.

After doing this, we found the daily returns for Nifty again from Prowess.

Beta values

These returns were then used to calculate beta by regression of market returns over
stock returns i.e.

Ri    Rm  
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Investment Management

For let us say Hero Honda the regression will give the following results:

SUMMARY
OUTPUT

Regression Statistics
Multiple R           0.48524
R Square             0.23546
Square               0.23226
Standard Error       2.08626
Observations              241

ANOVA
Significance
df          SS       MS             F             F
Regression                   1 320.3608 320.36075     73.604446   1.22262E-15
Residual                   239 1040.239 4.3524647
Total                      240    1360.6

Standard                                      Upper       Lower
Coefficients      Error     t Stat     P-value   Lower 95%     95%         95%   Upper 95%
Intercept           0.37364       0.13444 2.7791994   0.0058826   0.10879716 0.6384756   0.108797 0.63847559
X Variable 1         0.39212 0.045706 8.5793033       1.223E-15 0.302085242 0.4821599    0.302085 0.48215994

The value of beta for Hero Honda can be easily from the table above as 0.39212.

Similarly all the Beta values can be seen for the tables. All these beta values can be
tabulated. Now using the market returns for each security, the security risk can be
calculated as the variance of the returns. In the similar manner the market returns
can be used to calculate the market risk. Now the systematic risk can be calculated
using the formula

βi2 σm2

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Investment Management

The unsystematic risk can be calculated as total security risk – systematic risk.

σi2 - βi2 σm2
And finally the value of R2 can be calculated as

Systematic risk / Total Risk

This value of R2 can also be verified from the regression table. This was the table
thus obtained:

Hero      Hindusta                                        Maruti
Aurobind   Honda     n           Infosys                             Suzuki
o Pharma   Motors    Unilever    Technologie   NTPC                  India
Ltd.       Ltd.      Ltd.        s Ltd.        Ltd.     I T C Ltd.   Ltd.

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Description: Building a portfolio using efficient frontier technique. The paper selects a few growth stocks on the basis of their risk and return profiles and then minimises variance to construct a portfolio which resembles the efficient portfolio and then evaluates the portfolio using portfolio evaluation techniques
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