Portfolio Risk Calculation
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Portfolio Risk Calculation Portfolio Risk Calculation Document Transcript

  • A Report Tata Consultancy Services (A Report) Submitted To: Dr. Brajesh Kumar Submitted By: Sukant Arora JGU ID: 20100040 March 15, 2011Sukant Arora Page 1JGU ID 20100040
  • TATA CONSULTANCY SERVICESTata Consultancy Services is a company of Tata Group whose Chairman is Mr. Ratan N Tata.But there are two more people who are the reason behind company’s growth anddevelopment who are company’s Managing Director & CEO Mr. N Chandrasekaran andExecutive Director & CFO of the company Mr. S Mahalingam.At TCS people know that their clients need to do more with less, respond quickly to themarkets and get more strategic advantage from IT. TCS uniquely help its clients to tackledifferent business challenges. Be it I.T services, business solutions or outsourcing and theyassure a level of certainty unmatched by other players in the field.TCS has depth and breadth experience and expertise that one needs to achieve businessgoals and succeed amidst the fiercest competition. TCS serves many industries whichinclude: Banking & Financial Services, Government, High Tech, Insurance, Manufacturing,Media & Information Services, Retail & Consumer Products, Telecom, Travel, andTransportation & Hospitality.TCS stresses a lot on Innovation & Research Segmentation and that’s why they differentiatefrom the industry. They are pioneer in R&D and has an innovative environment that offersresearch based solutions in leading-edge technologies that will helps to meet one’s ITexpectation and support business objectives.In 2010 TCS has bagged a multi-year deal from British Government to administer NationalEmployment Savings Trust (NEST) and many other major deals.Financials: Company’s reported net profit is Rs.5618.51Cr which is more than 100% as incomparison with year’s 2006 reported net profit. Their current ratio is 1.49 and quick ratio is1.48.Its Debt Equity ratio is .01 and the Earning per share is 28.62.Current Situation in Stock Market:Price in BSE is Rs.1084.00Price in NSE is Rs.1086.60Beta of the stock is .76Sukant Arora Page 2JGU ID 20100040
  • YEAR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ROR ROR ROR ROR ROR ROR ROR ROR ROR ROR ROR ROR2005 -0.21% 0.26% 0.17% -1.13% 0.77% 0.09% -0.32% 0.48% 0.27% -0.27% 0.42% 0.53%2006 -0.09% 0.10% 0.56% 0.22% -0.45% -0.05% -1.94% 0.30% 0.13% 0.32% 0.45% 0.11%2007 0.24% -0.34% 0.20% 0.15% -0.32% -0.23% 0.15% -0.36% -0.01% -0.08% -0.10% 0.35%2008 -0.85% 0.06% -0.39% 0.70% 0.64% -0.88% -0.06% -0.11% -0.88% -0.85% 0.31% -0.69%2009 0.38% -0.28% 0.62% 0.90% 0.74% -1.79% 1.38% 0.03% 0.84% 0.08% 0.48% 0.42%2010 -0.08% 0.18% 0.12% -0.28% -0.12% 0.06% 0.53% 0.03% 0.46% 0.63% 0.12% 0.37%YEAR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Volatility Volatility Volatility Volatility Volatility Volatility Volatility Volatility Volatility Volatility Volatility Volatility2005 1.46% 1.23% 1.38% 3.05% 1.70% 1.39% 2.06% 1.55% 1.71% 1.73% 1.05% 1.57%2006 1.27% 1.15% 1.77% 2.70% 2.44% 3.54% 11.56% 0.88% 1.70% 1.59% 1.25% 1.81%2007 1.70% 1.76% 2.87% 1.92% 1.12% 0.88% 1.99% 1.93% 1.70% 2.06% 1.97% 2.31%2008 3.39% 2.86% 3.30% 3.53% 2.83% 2.40% 3.67% 1.88% 3.77% 6.68% 4.24% 3.32%2009 2.80% 2.28% 3.88% 2.75% 5.23% 11.00% 3.95% 2.30% 1.72% 2.08% 1.97% 1.00%2010 2.27% 1.16% 1.26% 1.45% 2.07% 1.51% 1.90% 1.45% 1.65% 2.24% 1.63% 1.14% Tata Consultancy Services Sukant Arora Page 3 JGU ID 20100040
  • 3.50% 3.00% 2.50% 2.00% 1.50% Rate Of Return 2005 1.00% Volatility 2005 0.50% 0.00% Mar Oct Nov Aug Apr Jun Jan Jul May Dec Feb Sep -0.50% -1.00% -1.50%In 2005 the stock of TCS did fine, Net return in the year was positive but still there were manyfluctuations in the share price and return of the share as we can see there is certain decline in thereturn of the stock in April but it recovered very fast in the month of May and also was veryvolatile.TCS opened its office in Portugal to increase its business in more than 33 countries. TCS gavedividend to its investors four times a year including 3 interim dividends and a final dividend. 350% on3rd February, 500% on July 6th, 300% on August 18th, and again 300% on October 18th. Effect of thiswas not much on the stock prices, but when the company provided the last dividend in the year thestock price declined gradually. 14.00% 12.00% 10.00% 8.00% 6.00% Rate Of Return 2006 4.00% Volatility 2006 2.00% 0.00% Nov Aug Apr May Jul Dec Feb Sep Mar Oct Jun Jan -2.00% -4.00%In the year 2006 besides the normal return and volatility, there was a stock split on July 28th in theRatio of 1:1 but the return on the given date was very negative and it was reduced by -51.13% Andthe net return of the stock after the year was also negative. TCS gave dividend to its investors onlyonce in the year this time in the year of 2006 on January 18th and the dividend was interim and was300% and this time it caused the stock price to increase by 31 rupees but again this return wasaround just 1.88% and the effect was not that significant.Sukant Arora Page 4JGU ID 20100040
  • 3.50% 3.00% 2.50% 2.00% 1.50% Rate Of Return 2007 Volatility 2007 1.00% 0.50% 0.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -0.50% -1.00%Year 2007 was the year of High Risk and High Return and the stock was very volatilethroughout the year. In the month of February the stock was very volatile due to the veryHigh Volume of Trade. As same as the last year the net return of the stock was negative. TCSgave dividend to its investors four times a year including 3 interim dividends and a finaldividend. 300% on 22nd January, 400%final dividend on June 15th, 300% on July 27th, andagain 300% on October 22nd. The dividend per share was Rs. 3, 4, 3 and 3 respectively.Effect of this was not much on the stock prices, but when the company provided the lastdividend in the year the stock price declined graduallySukant Arora Page 5JGU ID 20100040
  • 8.00% 7.00% 6.00% 5.00% 4.00% Rate Of Return 2008 3.00% Volatility 2008 2.00% 1.00% 0.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -1.00% -2.00%As we know the Year 2008 was the year of Global Financial Meltdown, this stock along withthe stock market was a victim of the same. As in the starting of the year itself there was notmuch volatility but the stock prices fall down, but as the crisis was getting to the positivephase this stock again attracted more investors and again the trading volumes become highand the stock became more volatile in the later part of the year. . TCS gave dividend to itsinvestors four times a year including 3 interim dividends and a final dividend. 300% on 23rdJanuary, 500%final dividend on June 18th, 300% on July 31th, and again 300% on October29th. The dividend per share was Rs. 3, 5, 3 and 3 respectively. Effect of this was not muchon the stock prices, but when the company provided the last dividend in the year the stockprice declined gradually.Sukant Arora Page 6JGU ID 20100040
  • 12.00% 10.00% 8.00% 6.00% Rate Of Return 2009 4.00% Volatility 2009 2.00% 0.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -2.00% -4.00%Though this year 2009 was the year of high volatility and the stock was volatile throughoutthe year but a Stock Split took place in the ratio of 1:1 on 16-Jun-09 which caused thenegative returns by -50.73though this year had a positive Net Annual Return. Besides thestock split in the year. TCS gave dividend to its investors four times a year including 3 interimdividends and a final dividend. 300% on 28th January, 500%final dividend on June 16th, 200%on July 27th, and again 200% on October 28th. The dividend per share was Rs. 3, 4, 2 and 2respectively. This time TCS reduced their dividend percentage and also the dividend pershare. Effect of this was not much on the stock prices, but when the company provided thelast dividend in the year the stock price declined gradually.Sukant Arora Page 7JGU ID 20100040
  • 2.50% 2.00% 1.50% Rate Of Return 2010 1.00% Volatility 2010 0.50% 0.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -0.50%The Year 2010 was a normal year in terms of the return of the stock but again throughoutthe year the stock was very volatile. But the returns were not as good as they should bewhen the stock is a volatile due to there was less trading volume as the markets were notresponding well to the IT industry. But still its net annual return was Positive. . TCS gavedividend to its investors five times a year including 3 interim dividends a final dividend and aspecial dividend. 200% on 27th January, A Special Dividend of 1000% on 15th June, 400%finaldividend on June 15th, 200% on July 29th, and again 200% on November 1st. The dividend pershare was Rs. 2, 10, 4, 2 and 2 respectively. Besides the special dividend given by thecompany the effect of this was not much on the stock prices, but when the companyprovided the last dividend in the year the stock price declined gradually.Sukant Arora Page 8JGU ID 20100040
  • TATA CONSULTANCY SERVICES vs. TATA MOTORS For the Year 2005 AVERAGE 0.000919177 0.000909983 STANDARD DEVIATION 0.017593564 0.019945168 CORRELATION 0.285470279 WEIGHTS TCS WEIGHTS TATAMOTORS PRETURN PRISK 1 0 0.000919177 0.000309533 0.9 0.1 0.000918257 0.000272731 0.8 0.2 0.000917338 0.000246069 0.7 0.3 0.000916419 0.000229547 0.6 0.4 0.000915499 0.000223165 0.5 0.5 0.00091458 0.000226923 0.4 0.6 0.00091366 0.00024082 0.3 0.7 0.000912741 0.000264858 0.2 0.8 0.000911822 0.000299035 0.1 0.9 0.000910902 0.000343352 0 1 0.000909983 0.00039781 Portfolio Risk 0.00092 P 0.000918 o 0.000916 R 0.000914 r e 0.000912 t 0.00091 Portfolio Risk t f 0.000908 u o 0 0.00010.00020.00030.00040.0005 r l n Portfolio Risk i oThis graph tells us that when there the portfolio is created it is beneficial for the investor as alongwith the risk it has greater returns.Efficient Portfolio WEIGHTS WEIGHT TCS TATAMOTORS PRETURN PRISK 0.587058055 0.412941945 0.09% 0.02%Sukant Arora Page 9JGU ID 20100040
  • For the Year 2006AVERAGE -0.00129646 0.001374684STANDARDDEVIATION 0.049739272 0.025359826CORRELATION 0.261354787 WEIGHTS TCS WEIGHTS TATAMOTORS PRETURN PRISK 1 0 -0.00129646 0.002473995 0.9 0.1 -0.001029346 0.002069707 0.8 0.2 -0.000762231 0.001714575 0.7 0.3 -0.000495117 0.001408599 0.6 0.4 -0.000228002 0.001151778 0.5 0.5 3.91122E-05 0.000944113 0.4 0.6 0.000306227 0.000785603 0.3 0.7 0.000573341 0.000676249 0.2 0.8 0.000840455 0.000616051 0.1 0.9 0.00110757 0.000605008 0 1 0.001374684 0.000643121 Portfolio Risk 0.20% P 0.15% o R 0.10% r e t 0.05% t f u 0.00% Portfolio Risk o r -0.05%0.00% 0.10% 0.20% 0.30% l n i -0.10% o -0.15% Portfolio RiskWhen the more risk is there in the portfolio it generates negative returns.Efficient Portfolio WEIGHT WEIGHT TCS TATAMOTORS PRETURN PRISK 0.12753507 0.872464926 0.10% 0.06%Sukant Arora Page 10JGU ID 20100040
  • For the Year 2007 AVERAGE -0.000594323 -0.000909001 STANDARD DEVIATION 0.018813046 0.021333522 CORRELATION 0.404905412WEIGHTSTCS WEIGHTS TATAMOTORS PRETURN PRISK 1 0 -0.000594323 0.000353931 0.9 0.1 -0.000625791 0.000320487 0.8 0.2 -0.000657259 0.000296723 0.7 0.3 -0.000688727 0.00028264 0.6 0.4 -0.000720194 0.000278238 0.5 0.5 -0.000751662 0.000283517 0.4 0.6 -0.00078313 0.000298476 0.3 0.7 -0.000814598 0.000323116 0.2 0.8 -0.000846066 0.000357436 0.1 0.9 -0.000877534 0.000401437 0 1 -0.000909001 0.000455119 Portfolio Risk 0.00% P 0.00% 0.02% 0.04% 0.06% o -0.02% R r e t -0.04% t f u Portfolio Risk o -0.06% r l n -0.08% i o -0.10% Portfolio RiskIt shows that it is not beneficial to invest in a portfolio as the return is always negative. Efficient WEIGHT Portfolio WEIGHT TCS TATAMOTORS PRETURN PRISK 0.604526303 0.395473697 -0.07% 0.03%Sukant Arora Page 11JGU ID 20100040
  • For the Year 2008AVERAGE -0.003230481 -0.006376204STANDARDDEVIATION 0.036248176 0.040313501CORRELATION 0.452331562WEIGHTSTCS WEIGHTS TATAMOTORS PRETURN PRISK 1 0 -0.003230481 0.00131393 0.9 0.1 -0.003545053 0.001199513 0.8 0.2 -0.003859626 0.001117439 0.7 0.3 -0.004174198 0.001067707 0.6 0.4 -0.00448877 0.001050318 0.5 0.5 -0.004803342 0.001065271 0.4 0.6 -0.005117915 0.001112567 0.3 0.7 -0.005432487 0.001192206 0.2 0.8 -0.005747059 0.001304188 0.1 0.9 -0.006061631 0.001448512 0 1 -0.006376204 0.001625178 Portfolio Risk 0.00% P 0.00% 0.05% 0.10% 0.15% 0.20% o -0.20% r r e -0.40% t t Portfolio Risk f u -0.60% o r l n -0.80% i Portfolio Risk oIt depicts the same as the return is negative with the risk of the portfolio and is not considered as a wise decision to invest.Efficient Portfolio WEIGHT WEIGHT TCS TATAMOTORS PRETURN PRISK 0.596234567 0.403765433 -0.45% 0.11%Sukant Arora Page 12JGU ID 20100040
  • For the Year 2009 AVERAGE 0.001702968 0.00634404 STANDARD DEVIATION 0.053014525 0.041796854 CORRELATION 0.178422879WEIGHTSTCS WEIGHTS TATAMOTORS PRETURN PRISK 1 0 0.001702968 0.00281054 0.9 0.1 0.002167075 0.002365171 0.8 0.2 0.002631183 0.001995139 0.7 0.3 0.00309529 0.001700442 0.6 0.4 0.003559397 0.001481082 0.5 0.5 0.004023504 0.001337058 0.4 0.6 0.004487611 0.001268369 0.3 0.7 0.004951719 0.001275017 0.2 0.8 0.005415826 0.001357001 0.1 0.9 0.005879933 0.001514321 0 1 0.00634404 0.001746977 Portfolio Risk 0.80% P 0.60% o R r 0.40% e t 0.20% t Portfolio Risk f u 0.00% o r 0.00% 0.10% 0.20% 0.30% l n i Portfolio Risk oIn this along with the greater portfolio risk there is greater return but if somebody wants to investthen he has to check his proportion of the stocks in the portfolio as if the weights of one stock areincreased it can cause loss also.Efficient Portfolio WEIGHT WEIGHT TCS TATAMOTORS PRETURN PRISK 0.358824215 0.641175785 0.47% 0.13%Sukant Arora Page 13JGU ID 20100040
  • For the Year 2010 AVERAGE 0.001748061 0.00183021 STANDARD DEVIATION 0.016524223 0.023401932 CORRELATION 0.357969168WEIGHTSTCS WEIGHTS TATAMOTORS PRETURN PRISK 1 0 0.001748061 0.00027305 0.9 0.1 0.001756276 0.000251564 0.8 0.2 0.001764491 0.000240954 0.7 0.3 0.001772706 0.000241222 0.6 0.4 0.001780921 0.000252367 0.5 0.5 0.001789136 0.000274388 0.4 0.6 0.00179735 0.000307287 0.3 0.7 0.001805565 0.000351062 0.2 0.8 0.00181378 0.000405715 0.1 0.9 0.001821995 0.000471244 0 1 0.00183021 0.00054765 Portfolio Risk 0.18% P 0.18% o R 0.18% r e t 0.18% t f Portfolio Risk u 0.18% o r l 0.17% n i 0.00% 0.02% 0.04% 0.06% o Portfolio RiskIts shows that this is a good portfolio to invest in as the return with the risk is high.Efficient WEIGHTPortfolio WEIGHT TCS TATAMOTORS PRETURN PRISK 0.75246071 0.24753929 0.18% 0.02%Sukant Arora Page 14JGU ID 20100040
  • PORTFOLIO RETURN WHEN THREE COMPANIES ARE CONSIDEREDWEIGHTS TCS WEIGHTS TATAMOTORS WEIGHTS TATA STEEL PRETURN PRISK 1 0 0 0.000919177 0.000309533 0.7 0.2 0.1 0.000817808 0.000220715 0.6 0.1 0.3 0.000619667 0.000206507 0.5 0.3 0.2 0.000717359 0.000197752 0.4 0.2 0.4 0.000519218 0.000195597 0.3 0.5 0.2 0.00071552 0.000215974 0.3 0.2 0.5 0.000419688 0.000204206 0.3 0.4 0.3 0.000616909 0.000203844 0 0.2 0.8 0.000121098 0.000280978 0.1 0.6 0.3 0.00061507 0.000252768 0 1 0 0.000909983 0.00039781 Portfolio Risk 0.001 0.0009 0.0008 0.0007 0.0006 0.0005 Portfolio Risk 0.0004 0.0003 0.0002 0.0001 0 0 0.0001 0.0002 0.0003 0.0004 0.0005 Sukant Arora Page 15 JGU ID 20100040
  • Beta Values Year 2005 SUMMARY OUTPUT Regression Statistics Multiple R 0.597960418 R Square 0.357556661 Adjusted R Square 0.354966164 Standard Error 0.014130095 Observations 250 ANOVA df Regression 1 Residual 248 Total 249 Coefficients Intercept -0.000191983 X Variable 1 0.946364856 Year 2006 SUMMARY OUTPUT Regression Statistics Multiple R 0.342942131 R Square 0.117609305 Adjusted R Square 0.114036873 Standard Error 0.046817395 Observations 249 ANOVA df Regression 1 Residual 247 Total 248 Coefficients Intercept -0.002686424 X Variable 1 1.031653124Sukant Arora Page 16JGU ID 20100040
  • Year 2007 SUMMARY OUTPUT Regression Statistics Multiple R 0.601319603 R Square 0.361585265 Adjusted R Square 0.358990083 Standard Error 0.015062307 Observations 248 ANOVA df Regression 1 Residual 246 Total 247 Coefficients Intercept -0.001807317 X Variable 1 0.705404576 Year 2008 SUMMARY OUTPUT Regression Statistics Multiple R 0.668701815 R Square 0.447162118 Adjusted R Square 0.444887065 Standard Error 0.02700703 Observations 245 ANOVA df Regression 1 Residual 243 Total 244 Coefficients Intercept -0.000661628 X Variable 1 0.86140481Sukant Arora Page 17JGU ID 20100040
  • Year 2009 SUMMARY OUTPUT Regression Statistics Multiple R 0.330500204 R Square 0.109230385 Adjusted R Square 0.105518845 Standard Error 0.050139555 Observations 242 ANOVA df Regression 1 Residual 240 Total 241 Coefficients Intercept -0.000119217 X Variable 1 0.817881085 Year 2010 SUMMARY OUTPUT Regression Statistics Multiple R 0.508462962 R Square 0.258534584 Adjusted R Square 0.255556811 Standard Error 0.014257285 Observations 251 ANOVA df Regression 1 Residual 249 Total 250 Coefficients Intercept 0.001228793 X Variable 1 0.819226819Sukant Arora Page 18JGU ID 20100040
  • Year Beta Intercept 2005 0.946365 -0.00019 2006 1.031653 -0.00269 2007 0.705405 -0.00181 2008 0.861405 -0.00066 2009 0.817881 -0.00012 2010 0.819227 0.001266 Industry Beta= .77 1.2 0.0015 0.001 1 0.0005 0.8 0 -0.0005 0.6 Beta -0.001 Intercept 0.4 -0.0015 -0.002 0.2 -0.0025 0 -0.003 2005 2006 2007 2008 2009 2010From the data, we observe that the company has almost has same value of Beta from linearregression technique and Normal computation using Covariance between return on companystock and the market return and, the variance in the market return.This is because of the fact that the relationship between the changes in returns of thecompany with respect to changes in the market returns is a constant. Here the Beta value ofthe stock is different from year to year because here the market is driving the stock not viceversa. The beta of the stock was in sync of the industry and was going in the same directionof the industry and the other stocks of the company.Sukant Arora Page 19JGU ID 20100040