This caselet enables an interesting discussion on portfolio risk which can be minimized using Modern Portfolio Theory (MPT). The degree and direction of correlation between asset returns have far-reaching effects on reduction of portfolio risk through diversification. The caselet through the dilemmas of the protagonist Payal Roy (Payal) presents a comprehensive analysis of risk and return associated with portfolio investments. The protagonist of the caselet, Payal was facing a dilemma when she resorted to forming an effective portfolio which could minimize the risk levels. Different statistical and financial tools such as standard deviation, R-squared and beta have been used in this caselet, to analyze the combination of stocks that can form an optimal portfolio based on Payal’s risk tolerance.

1. PORTFOLIO RISK: PAYAL ROY’S DILEMMAS
This caselet enables an interesting discussion on portfolio risk which can be minimized using
Modern PortfolioTheory (MPT).The degree and direction of correlation between asset returns
have far-reaching effects on reduction of portfolio risk through diversification.The caselet through
the dilemmas of the protagonist Payal Roy (Payal) presents a comprehensive analysis of risk and
return associated with portfolio investments. The protagonist of the caselet, Payal was facing a
dilemma when she resorted to forming an effective portfolio which could minimize the risk
levels. Different statistical and financial tools such as standard deviation, R-squared and beta
have been used in this caselet, to analyze the combination of stocks that can form an optimal
portfolio based on Payal’s risk tolerance.
Pedagogical Objectives
• To assess and measure the risks associated with individual stocks and portfolios
• To calculate beta by applying regression techniques
• To understand the relationship between risk and return and concept of Capital Asset Pricing
Model (CAPM)
Case Positioning and Setting
This caselet can be used for any/both of the following modules/courses:
• Risk and Return chapter in Financial Management course –To understand the fundamentals
of risk and return and their relationship.
• Portfolio Risk module in Financial Management course – To analyze the significance of
MPT and understand how to build efficient portfolios.
ABSTRACT
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