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Risk And Return Of The Portfolio

Risk And Return Of The Portfolio






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    Risk And Return Of The Portfolio Risk And Return Of The Portfolio Presentation Transcript

    • PORTFOLIO RISK AND RETURN prepared by : hocine boughezla hamad –akhmedov davr an UUM-2009
      • OULTLINE
      • Introduction
      • Objectives
      • Company background
      • Recommendation
      • Key Concepts and Skills
      • The risk and return of this portfolio
      • Portfolio's analysis
      • Conclusion
      • Introduction
      • In modern portfolio theory there is a trade-off between risk and return for many years , investment advisers and investment managers focused on return with the occasional caveat subject to risk, while the risk related to individual companies can be removed by diversification
      • We show you simple portfolio including two companies from the same industry of traveling
    • objectives
      • the purpose is to determine risk and return of the portfolio for operating on the efficient frontier portfolio, maximize expected return and minimize risk .
      • addition optimizes to make recommendations to their investor
      • The portfolio of individual stocks will help us to reduce the overall risk and possibly increasing rate of return
      • COMPANY
      • Air Asia
      • The airline was established in 1993 and started operations on 18 November 1996
      • Air Asia had large fleet ( more than 72 aircrafts) .
      • By May 2008, the airline had flown 55 million cumulative passengers
      • Air Asia operates over 200 flights a day, to over 75 domestic and international routes
      • Malaysia Airlin es
      • Was established and commenced as Malayan Airways Limited (MAL) on 12 October 1937.
      • connects nearly 50,000 passengers daily to some 100 destinations worldwide across 6 continents .
      • Holds a lengthy record of service and best practices excellence, having received more than 100 awards in the last 10 years
      • Recommendation
      • Efficiency creates savings which are then passed on to guests so that affordable air travel can become a reality. Through the philosophy of ‘Now Everyone Can Fly’, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport
      • With its dedicated team of 19,000 employees worldwide, Malaysia Airlines will continue to soar for many more years to come as it transforms into The World’s Five Star Value Carrier.
      • Key Concepts and Skills
      • Know how to calculate expected returns
      • Understand the impact of diversification
      • Understand the risk-return trade-off
      • Steps calculation
      • Expected Returns and Variances
        • Expected returns
        • Calculating the variance
      • Portfolios
        • Portfolio weights
        • Portfolio expected returns
        • Portfolio variance
        • Correlation and Diversification
      • RISK & RETURN
    • Correlation: r am =
      • The risk and return of this portfolio
      • Computation for Individual Stock
      ASSET Expected Return Standard Deviation Covariance Correlation AIRASIA 0.02132 0.06459 0.00388 0.43765 M AIRLINES 0.02269 0.13738
      • Constant Covariance with Different Weight Proportion
      CASE AIRASIA M AIRLINES E(R port(a,m) ) σ port(a,m) A 0.00 1.00 0.02269 0.13738 B 0.20 0.80 0.02241 0.11614 C 0.40 0.60 0.02214 0.09657 D 0.50 0.50 0.02200 0.08776 E 0.60 0.40 0.02187 0.07991 F 0.80 0.20 0.02160 0.06832 G 1.00 0.00 0.02132 0.06459
      • Portfolio's analysis
      • we will use the probability distribution for the returns on stocks Air Asia and Malaysia Airlines.
      • we know that the expected return on Stock A is 2.13% and on Stock M is 2.27% the variance on Stock A is 0.00417, on Stock M is 0.01887, the standard deviation on Stock M is 0.06459, and the standard deviation on Stock A is 0.13738.
      • Correlation coefficient 0.43765
      • Correlation more than (0) means that the returns of the two assets always move in the same direction and they are perfectly positively correlated .
      • Conclusion
      • The total risk of a portfolio has no simple relation to the total risk of the assets in the portfolio.
      • Recall the variance of a portfolio equation For two assets, you need two variances and the covariance
      • Most investors look for 2 main objectives in forming a portfolio: To obtain a large expected return and a small variance and standard deviation.
      • These companies could then use this model to reallocate assets annually or monthly , to make sure changes in the risk of the assets and correlations between the assets are still maximizing their required return while minimizing the portfolio variance
      • We choose case G with lower coefficient of variances which is 3.02915 where 100% of our investment goes to Air Asia with expected of return of 2.13%.
      • THE END
      • THANK YOU