STOCK-TRAK INVESTMENTS REPORTBYVISHAL PRABHAKARAJAY GNANASEKARAN
"Wall Street is the only place that people ride to in a Rolls-Royce to getadvice from those who take the subway.”"Derivati...
Table of ContentsSl#No.! TOPIC! Page#Number!1# Introduction! 1#2# Securities!Selection!Approach! 2#3# Portfolio!Sector!All...
1 | P a g eINTRODUCTIONAviazon Corp is happy to announce the performance of Mr. Bradley Cooper’s Portfolio, whichperformed...
2 | P a g eSECURITIES SELECTION APPROACHAviazon Corp’s approach towards security selection has always been entirely throug...
3 | P a g eFigure 2Figure 3
4 | P a g eMUTUAL FUNDSOne of the main advantages of us investing in mutual funds is that it gives a good leverage to inve...
5 | P a g eRiskHigh Return Portfolio’s are always accompanied with high risks.The Mutual funds in our Portfolio are• LKCM ...
6 | P a g eFigure 3Mutual Fund PerformanceThe performance of the Mutual Funds was satisfactory with all the Funds generati...
7 | P a g eFigure 4A total of $50,000 was invested in the ETF’s and in the sectors as depicted in Figure 4.ETF Performance...
8 | P a g eBonds are commonly referred to as fixed-income securities and are one of the three main asset classes,along wit...
9 | P a g eFigure 5Stocks PerformanceThe performance of almost all the stocks in Long position performed well and yielded ...
10 | P a g eThe portfolio consisted of investments in Commodity Futures and Futures Options in Corn. Investmentin Corn was...
11 | P a g ePortfolio SummaryCash Balance $928,215.83Short Sale Proceeds N/ALoan Balance 0Interest Earned on Cash $3,260.0...
12 | P a g ePerformance evaluation of Aviazon Corp.The following performance Evaluation for the Investment firm Aviazon Co...
13 | P a g eFigure 8 shows the growth of the portfolio value over the twelve weeks versus the cumulativeinvestment of one ...
14 | P a g ePerformance Analysis Measuresa) Sharpe MeasureThe total risk measured by the Standard Deviation of the portfol...
15 | P a g eFigure 11The Sharpe Ratio of the market is higher than the portfolio. Hence in terms of total reward to volati...
16 | P a g eTreynor measure or ratio is defined as the ratio of Excess return over Market Risk.Treynor Ratio = (Return of ...
17 | P a g eFigure 13c) Jensen’s Alpha measureJensen’s Alpha is a measure of the return of the portfolio over and above th...
18 | P a g eFigure 14d) Information Ratio or Appraisal RatioThe appraisal ratio is a measure of the return per unit of non...
19 | P a g eFigure 15The above figure gives us the total diversifiable risk per unit of abnormal return. Comparing it with...
20 | P a g eFigure 16f) Returns of the Portfolio Versus RiskFigure 17 shows the market risk-return relationship during the...
21 | P a g eFigure 17
22 | P a g eWith regards to the diversification of the portfolio, the difference between the value of Beta (β=-0.2805) and...
Exchange Company Name QTY Currency Price Paid Last Price Market Value Profit/Loss P/L % Amount spentUS 19/02/13 General Co...
APPENDIX 2!STOCKS PERFORMANCE!!!!!
!!!!!!!
!!!!!!!!862.65!809.5!851!843.8!810.8!773.7!780! 776.35!846.2!781.05!720!740!760!780!800!820!840!860!880!5! 6! 7! 8! 9! 10!...
MUTUAL FUNDS & ETF’S PERFORMANCE!!!
!
APPENDIX 3TRANSACTION HISTORYTrade Date Order Symbol Qty Price Commission Amount24/01/13 18:44 MARKET - BUY AMAGX 359 27.8...
05/04/13 11:59 MARKET - SELL C/K3 -1 6.295 20 -4508/04/13 9:40 STOP - SELL SBUX1320P57.5 -18 0.65 10 1,160.0009/04/13 15:0...
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Investment project aviazoncorp report

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An investment project in a virtual trading platform with the most realistic simulations available for real-time, streaming platforms that feature global equities, bonds, options, futures, commodities and more.
The project involved being a financial advisor for an investor with a total portfolio value of USD 1 million.

This project report highlights the performance and strategies used to ensure a successful and profitable Investment for the portfolio.

The trading period started on 22nd January, 2013 and ended on 12th April, 2013.

Published in: Economy & Finance, Business
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Investment project aviazoncorp report

  1. 1. STOCK-TRAK INVESTMENTS REPORTBYVISHAL PRABHAKARAJAY GNANASEKARAN
  2. 2. "Wall Street is the only place that people ride to in a Rolls-Royce to getadvice from those who take the subway.”"Derivatives are financial weapons of mass destruction." - Warren Buffett"If wealth is lost, nothing is lost; if health is lost, something is lost; ifcharacter is lost, everything is lost”
  3. 3. Table of ContentsSl#No.! TOPIC! Page#Number!1# Introduction! 1#2# Securities!Selection!Approach! 2#3# Portfolio!Sector!Allocation! 2#4# Mutual!Funds! 4#5# Exchange!Traded!Funds! 6#6# Bonds! 7#7# Stocks! 8#8# Commodities,!Stock!Options,!Futures!&!Future!Options!9#9# Portfolio!Summary! 10#10# Performance!Evaluation!of!Aviazon!Corp.! 12#11# Conclusion! 22#12# Appendix!1G!Performance!of!Securities! G!13# Appendix!2GPerformance!Chart!!of!Main!Securities! G!14# Appendix!3GTransaction!History! G!!
  4. 4. 1 | P a g eINTRODUCTIONAviazon Corp is happy to announce the performance of Mr. Bradley Cooper’s Portfolio, whichperformed extremely well and above the estimated expectations. The trading period started from 22ndJanuary, 2013 and ended on April 12th, 2013. As per the customer’s requirements and after undergoingan evaluation of the risk taking capacity, the portfolio type had a growth profile.A Growth Portfolio’s objective is to accumulate wealth, over time, rather than current income. As aninvestor the ability to accept the risk of price volatility in seeking to achieve growth was of primeimportance. The historical average annual total return for this allocation typically ranges from 7% to9%. This growth typically varies according to the market sensitivity.The Amount allocated for the Portfolio was $1 million, with a margin fund of $ 100,000. This fundcould be used in case of any unforeseen circumstances. The Growth Portfolio essentially has higherrisks and higher returns with Asset allocation upto 60% Stocks, 25% Bonds, 15% Cash. This allocationhelps us to balance between and risks and return potential to achieve our specific goals.Investor ProfileOur Investor Mr. Bradley Cooper aged 31, Married with 2 kids, lives in Fremont California works forTesla motors as Senior Manager- Quality Control. He is compensated with a salary of $200,000/annum. Our client comes from a well to do background with family assets and financial assetssumming up to $ 9 million. Our client is an Extrovert and a High Risk taker investing for his retirementand kids’ future educational support. The investment time scale margin is 7-12 years.PortfolioThe Portfolio consists of Mutual funds, Exchange Traded Funds, Stocks, International Portfolio stocks,Bonds, Options and Future contracts on commodities and future options. Each security was analyzedaccording to its allocation so that it complimented our Portfolio criteria.Figure 1
  5. 5. 2 | P a g eSECURITIES SELECTION APPROACHAviazon Corp’s approach towards security selection has always been entirely through market researchand extensive analysis of our investor’s profile. The stocks and securities have been picked to matchthe portfolio’s profile.After extensive research and analysis about the investor being done, his needs from the portfolio, risktaking ability, expected return potential and his investment duration were considered. It was importantto know the investor’s profile as this was helpful in better picking of securities.Top down Approach is what we followed in our portfolio selection process. It was important toconsider such factors as geography, sector and size as a big picture perspective was taken first beforelooking at the more minute details. Although there was some debate as to whether the top-downapproach is better than the bottom-up approach, we found the top-down approach useful indetermining the most promising sectors in a given market.Asset allocation had to be constantly monitored as for each portfolio the allocation varied accordingly.Our portfolio falls under growth category and needed to have an asset allocation around 65% stocks,25% bonds and 15% cash. Ideality in portfolio allocation is not always observed because of the marketconditions. Portfolio of Mr. Bradley Cooper had 72% stocks 14% cash and 14% bonds. The bad bondmarket condition and the bullish equity market explains the reduced bond allocation and increase ininvestments of the Stocks respectively.Constant market analysis had to be done, observing their growth and earnings trend helped us to investcautiously. Current affairs also had a heavy impact on the market and stock prices. Company reviewsand Analysis were very important to our selection.PORTFOLIO SECTOR ALLOCATIONWe maintained a well-balanced portfolio which invested adequately in the various sectors comprisingnational and international economy. Consumer, Banks, technology, mining, industrials, Healthcare andutilities were generally present in mixed equity portfolios and added to the diversification.The portfolio had the biggest weight for consumer cyclical and least to the Realty sector. The marketwas currently in a growth phase hence we diversified accordingly. International diversification was agood strategy to adapt especially when investing in companies with growing markets and currencyvalues. Our portfolio had securities from countries like India, Thailand etc.
  6. 6. 3 | P a g eFigure 2Figure 3
  7. 7. 4 | P a g eMUTUAL FUNDSOne of the main advantages of us investing in mutual funds is that it gives a good leverage to investorsto access professionally managed, diversified portfolios of equities, bonds and other securities, whichis not quite possible for them to conceive with a small capital. Each shareholder participatesproportionally in the gain or loss of the fund.Mutual Funds were mainly analyzed taking into consideration important factors such as:Minimum InvestmentMinimum investment for mutual funds can stretch anywhere from $0 all the way to $1 million or morefor institutional share classes. For retail investors, there remains a large selection of funds that havemodest minimum investments of a few hundred dollars.A big factor for a fund manager in determining a minimum investment size is the strategy and liquiditydemands of the fund itself. By setting a high minimum investment, fund managers can effectivelyweed out short-term investors and regulate cash inflows to the fund, which can be helpful for day-to-day management of the assets. In our Portfolio the selected Mutual Funds had a minimum Investmentof $100 - $2500.Expense RatioExpense ratio or Management Expense Ratio (MER) is what it costs a company to operate a MutualFund. Expense ratio must be minimal and for our portfolio, we have invested with funds having MERof $0.78 – $1.43.Morning Star RatingMorning Star Ratings served as an excellent guideline for the investors to select their funds and stocks.It rates a stock according to its return potential and risk. It also does a basic analysis such as its historicperformance, market sensitivity etc. Mutual Funds in our portfolio are all 5 star rated.ReturnMutual funds selected are based on their return potential. Our Portfolio is of a growth profile; hence itfalls in the high Return category.Fund Managers HoldingsAnother important consideration, is to review the fund managers holdings or contribution in thecompany. This would indicate the confidence of the manager in his funds future performance.
  8. 8. 5 | P a g eRiskHigh Return Portfolio’s are always accompanied with high risks.The Mutual funds in our Portfolio are• LKCM Equity Instl LKEQX• Wells Fargo Advantage growth Inv SGROX• Laudus Growth Investors US large cap Gr LGILX• Marsico Flexible Capital MFCFX• Amana Growth AMAGX• Touchstone sands capital select growth Z PTSGXCode%% NAV% Min%Invest% Yield% Load% Expense% Turn%over% Investment%LKEQX& $18.45 $2,000.00 0.65% 0 0.80% 20.00% $15,000SGROX& $41.45 $2,500.00 0.00% 0 1.76% 47.00% $15,000LGILX& $15.18 $100.00 0.11% 0 0.78% 96.00% $20,000MFCFX& $15.43 $2,500.00 0.60% 0 1.43% 12.00% $20,000AMAGX& $27.88 $250.00 0.25% 0 1.13% 12.00% $10,000PTSGX& $13.13 $2,500.00 0.00% 0 1.32% 19.00% $20,000Table 1A total of $100,000 dollars was invested in Mutual Funds as per the allocation in Figure 2. Theallocation of the various sectors in the invested mutual funds is given in Figure 3.Figure 2
  9. 9. 6 | P a g eFigure 3Mutual Fund PerformanceThe performance of the Mutual Funds was satisfactory with all the Funds generating profits. Owing tolong-term nature of the funds, the growth funds would eventually yield a greater return. Theperformance and profits made by the Mutual Funds can be seen in Appendix 1 and Appendix 2.EXCHANGE TRADED FUNDSETF is type of security which tracks an index, a commodity, basket of assets like an index fund, but ittrades like a stock on an Exchange. The prices fluctuate throughout the day as it’s actively traded.The ETF’s in our portfolio are• THD iShares MSCI ThCIM Shs• QQQ Power shares QQQ SerI Shs• PJP PowerShares ETF Shs Dynamic Pharmaceuticals PortfolioETF Sector AllocationETFS% Cash Stocks Bonds Others TotalPJP 192.6 17807.4 0 0 18000QQQ 0 18000 0 0 18000THD 0 13986 0 14 14000Table 2
  10. 10. 7 | P a g eFigure 4A total of $50,000 was invested in the ETF’s and in the sectors as depicted in Figure 4.ETF PerformanceThe performance of the Exchange Traded Funds was positive with all the Funds generating profits.Owing to long-term nature of the funds, the growth funds would eventually yield a greater return. Theperformance and profits made by the Exchange Traded Funds can be seen in Appendix 1 andAppendix 2.BONDSA debt investment in which an investor loans money to an entity (corporate or governmental) thatborrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies,municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.Symbol% Company%Name% QTY% Amount%Invested%B-COF-10.250-15082039 CAPITAL ONE CAP V 6 6000.6B-FNF-7.625-15072017 FIDELITY NATIONAL INFORM 3 3240B-GT-10.500-15052016 GOODYEAR TIRE & RUBR CO 1 1091B-T-4.625-15022040 T-BOND 4.625% 15-Feb-2040 10 13278.9B-T-5.000-15052037 T-BOND 5.000% 15-May-2037 20 27745.4B-T-6.125-15082029 T-BOND 6.125% 15-Aug-2029 10 14996.1B-T-6.250-15052030 T-BOND 6.250% 15-May-2030 10 15286.7B-T-6.375-15082027 T-BOND 6.375% 15-Aug-2027 10 15022.7B-T-6.875-15082025 T-BOND 6.875% 15-Aug-2025 10 15268B-T-7.500-15112024 T-BOND 7.500% 15-Nov-2024 20 31369.6Table 3
  11. 11. 8 | P a g eBonds are commonly referred to as fixed-income securities and are one of the three main asset classes,along with stocks and cash equivalents.The current scenario for the bond market is weak, which made us reduce the allocation from 25% toaround 14% of the total assets. The total amount invested in Bonds is around $143,299.Bonds PerformanceThe performance of the bonds was as expected, managing to make a small profit attributing to thecurrent bond market being weak and also because the portfolio time-scale is a long-term one,considerable benefits could not be reaped out of this asset class. For more details, refer to Appendix 1.STOCKSThe below strategy to pick stocks was instrumental in helping us achieve our desired objective andoutcome with extremely good performance of our stocks.• Look for stocks having very good timeliness, safety and technical rankings (1 or 2 preferable)• Look for stocks that are expected to rise by more than most other stocks-This involved in doinga bit of Fundamental Analysis for a few stocks which were good as predicted by the market.• Look for stocks with consistent performance as indicated by good rankings, growthcharacteristics and earnings.• Read through the analyst reports.• Diversify always.The below table gives you the stocks held in Long and short position.Symbol Company Name QTY Price PaidGNCMA% GeneralCommunicationsInc -1209 $ 8.25RL% RalphLaurenCorp 74 $ 176.69EBAY% eBayInc 211 $ 56.96DEO% DiageoShsSponsoredAmericanDepositReceiptRepr4Shs 249 $ 120.03MMM% 3MCo 294 $ 103.35HD% HomeDepotInc 296 $ 67.56IFF% InternationalFlavors&FragrancesInc 331 $ 74.32AON% AonPLC 523 $ 57.16DOV% DoverCorp 551 $ 73.13JNJ% Johnson&Johnson 656 $ 76.16NKE% NikeInc 1091 $ 54.99UL% UnileverShsSponsoredAmericanDepositReceiptRepr1Sh 1256 $ 40.15SBUX% StarbucksCorp 1837 $ 54.59RIL% RelianceIndustriesLtd 3333 INR 846.2XTXI% CrosstexEnergyInc. -845 $ 17.79NYT% TheNewYorkTimesCompany -1668 $ 9ITC% ITCLtd 9450 INR 300.3Table 4
  12. 12. 9 | P a g eFigure 5Stocks PerformanceThe performance of almost all the stocks in Long position performed well and yielded very goodprofits. However the performance of the three Stocks in short position did not perform as expected andmade a loss. This can be owed to the fact that the market was bullish. The performance and profit / lossof the Stocks can be seen in Appendix 1 and Appendix 2.COMMODITIES, STOCK OPTIONS, FUTURES & FUTURE OPTIONSFrom the orange juice we drink to the gas we use to power our vehicles and heat our homes,commodities play important roles in our daily lives. They can be found literally all over the world, andcan be traded on the global marketplace as part of a diversified investment portfolio. In fact, billions ofdollars are invested in commodities every day.While they can be traded on either spot (real-time) or futures (options) markets, most individualcommodities are traded in the form of futures, where what is being traded is not the commodity itselfbut rather a contract to buy or sell it for a certain price by a stated date in the future. This carries thepotential for wild market fluctuations, but it also offers exciting opportunities for investors willing toride out market volatility in anticipation of rewards.Like any investment, the goal in commodities trading is to buy low and sell high. The difference withcommodities is that they are highly leveraged and trade in contract sizes instead of shares. The primarydifference between options and futures is that options give the holder the right to buy or sell theunderlying asset at expiration, while the holder of a futures contract is obligated to fulfill the terms ofhis/her contract. The portfolio utilized stock options only for hedging purposes to ensure no loss. Formore details on the performance of stock options, refer to Appendix 1.
  13. 13. 10 | P a g eThe portfolio consisted of investments in Commodity Futures and Futures Options in Corn. Investmentin Corn was an important strategy for our success. Reports of high percentage of corn supply beingunused prompted us to invest in this commodity.Futures No. ofContracts1Futures –CK/ 13 Price Qty AmountPrice Paid 6.95 5000 $34750Price Sold 6.465 5000 $32325Table 5The company invested in Corn Futures with the purchase of 1 contract at a price of $6.95/ bushel. Thetotal amount invested in Futures was $34750 and there was a loss of $2425.Futures Options.This was a part of our active management strategy and this yielded us a humongous profit. Ourstrategy was to hedge using Futures Options on the Corn Futures we bought. The amount invested inFutures Options in Corn matched the amount invested in Corn Futures.Futures Options No.ofContracts30Corn5/2013 7.35 Put PremiumPriceQty AmountOZCK13P7350 -Buy 0.2 30*5000 $30000OZCK13P7350 -Close 0.6 30*5000 $90000Table 6The company invested in Corn Futures Options with the purchase of 30 contracts at a price of $0.2/bushel. The total amount invested in Futures Options was $30000 and the profit made was $ 60,000.The fall in corn prices enabled us to make a handsome profit. This profit was results of a tactical movebacked with strong belief in our fundamental analysis of the fall in prices of Corn post the reports ofunused supply of Corn.Summary of Stock-Trak PortfolioThe Portfolio has performed exceedingly well as it has posted a Net Market Value of $ 1,078,993.90 atthe end of the trading period. Table 7 gives us the Portfolio Value and summary at the end of thetrading period.
  14. 14. 11 | P a g ePortfolio SummaryCash Balance $928,215.83Short Sale Proceeds N/ALoan Balance 0Interest Earned on Cash $3,260.04Interest Charged on Loan $0.00Total Mark to Market Value for FuturesRestricted Funds $12,600.00Margin Requirements $0.00Total Margin for FuturesMarket Value of Long Positions $145,666.70Accrued Interest Earned on Bonds $1,791.32Market Value of Short Positions $0.00Net Market Value of all PositionsPortfolio Value $1,078,933.90Percentage Return 7.89%Buying Power $1,993,817.44Trades Made/Allowed 84SP500 % Return 6.92%SP500 at start date 1,485.98Current SP500 1,588.85Table 7Figure 6 and 7 shows the Assets which contributed the most to the Profit and the loss of the portfolio.As mentioned earlier, the futures options reigned in the highest profit followed by the Stocks. Thehighest losses were again due to Stocks, most of which was in Short positions.Figure 6 Figure 7
  15. 15. 12 | P a g ePerformance evaluation of Aviazon Corp.The following performance Evaluation for the Investment firm Aviazon Corp. is computed for theinvestment period starting from 22ndJanuary 2013 to 12thApril 2013.Week # $ Portfolio value Port Return S&P Value S&P 500 Return0 $10,00,000.00 NA 1,485.98 NA1 $10,01,124.18 0.112% 1,502.96 1.143%2 $10,02,127.29 0.100% 1,513.17 0.679%3 $10,02,595.98 0.047% 1,517.93 0.315%4 $10,02,926.25 0.033% 1,519.79 0.123%5 $10,00,278.35 -0.264% 1,515.60 -0.276%6 $ 9,99,602.52 -0.068% 1,518.20 0.172%7 $10,16,475.37 1.688% 1,551.18 2.172%8 $10,14,903.54 -0.155% 1,560.70 0.614%9 $10,19,002.94 0.404% 1,556.89 -0.244%10 $10,20,687.11 0.165% 1,569.19 0.790%11 $10,68,130.53 4.648% 1,553.28 -1.014%12 $10,78,933.90 1.011% 1,588.85 2.290%G Mean 0.6351% 0.559%Table 8: Weekly Portfolio Values and ReturnsThe above table provides weekly Portfolio values and its corresponding weekly return rates, whichgives a good account of the performance of Aviazon Corp through the course of the Project. Table 8highlights the fact that the final portfolio value of $10,78,933.90 and the corresponding Geometricreturn of 0.635% per week outperformed the market return of 0.559% per week.Although, it may seem that the Portfolio outperformed the market in terms of returns, thecorresponding risk taken also plays an important factor in performance analysis. Hence the risk-adjusted performance of the portfolio would be a better assessment of the portfolio performance.However, in this case the risk-adjusted performance is compared with the S&P 500 index, which itselfis not an accurate representation of the entire market since the portfolio consists of a mix of manyassets like Stocks, Bonds, Options, Futures and Commodities.If the portfolio consisted of only equity then the S&P 500 would be the ideal comparison forassessment of performance. To add to that, the 12-week period is not an ideal sample size forcomparison purposes. For purposes of performance evaluation, the analysis that follows is compared tothe S&P 500. Table 9 gives an insight into the risk-adjusted performance figures, which are importantin assessing the portfolio performance concerned to various measures.Portfolio S&P 500Geometric average return 0.635% 0.559%Standard Deviation (TotalRisk)1.38% 0.96%Beta (Systematic Risk) -0.2805 1Non-systematic Risk 1.349% 0Table 9: Return & Risk Performance figures
  16. 16. 13 | P a g eFigure 8 shows the growth of the portfolio value over the twelve weeks versus the cumulativeinvestment of one million USD$ during the trading period.Figure 8Figure 9 shows the growth of the portfolio compared to the S&P 500 for the twelve-week tradingperiod. The figure shows that the portfolio had similar but lower returns than the S&P 500 for mostpart of the trading period, until Week 10, where the returns between the market and the portfolio werenegatively correlated. This week saw that the Portfolio outperformed the market and had extremelyhigher returns than the S&P 500.Figure 9
  17. 17. 14 | P a g ePerformance Analysis Measuresa) Sharpe MeasureThe total risk measured by the Standard Deviation of the portfolio is 1.38% compared to the S&Pfigure of 0.96%. Sharpe Ratio measures the total risk adjusted performance of the Portfolio. It isdefined as the ratio of Excess return to the Total Risk (Standard Deviation) of the portfolio.Sharpe Ratio = (Return of the Portfolio – Risk Free Rate) / Standard Deviation (σ)Note: The weekly risk-free rate is approximately 0.0585% and this rate is used in our performancecalculations throughout.Sharpe Ratio of the Portfolio = 0.4191Sharpe Ratio of the Market = 0.5194Figure 10
  18. 18. 15 | P a g eFigure 11The Sharpe Ratio of the market is higher than the portfolio. Hence in terms of total reward to volatility,the market outperformed the portfolio (Figure 10). The main contributing factor to theunderperformance of the portfolio in this measure is because of the high Total risk or StandardDeviation of the portfolio (Figure 11).b) Treynor MeasureThe Treynor measure estimates the performance of the portfolio corresponding to the systematic ormarket risk or non-diversifiable risk of the portfolio. Beta is an accurate representation of thesystematic risk as it represents the effect or consequences of the Market on the portfolio. The Beta ofthe portfolio is -0.2805, which shows that the portfolio is negatively correlated to the market. It isobtained by computing the slope between the Excess market return (X) of the market and the portfolio(Y).Though the performance of the market and the portfolio have been bullish having returned positivereturns, the negative Beta can be attributed to the fact that the performance of the portfolio in Week 11outperformed the market with a positive return of +4.648% whereas the market (S&P500) posted anegative return of -1.014 %. Owing to the small sample size of 12 weeks, the portfolio shows anegatively correlated Beta.
  19. 19. 16 | P a g eTreynor measure or ratio is defined as the ratio of Excess return over Market Risk.Treynor Ratio = (Return of the Portfolio – Risk Free Rate) / Beta (β)Treynor Ratio of the Portfolio = -0.0206Treynor Ratio of the Market = 0.0050.Figure 12The Treynor measure of the market is higher than the portfolio; hence the market outperformed theportfolio (Figure 12). The underperformance of the portfolio is owed to the fact that the Beta isnegatively correlated to the market. Figure 13 shows the Systematic Risk of the Portfolio and themarket.
  20. 20. 17 | P a g eFigure 13c) Jensen’s Alpha measureJensen’s Alpha is a measure of the return of the portfolio over and above that predicted by the CapitalAsset Pricing Model.Alpha (α) = (Return of Portfolio-Risk-Free Rate) – Beta (β) * (Return of Market-Risk Free Rate)The portfolio has a positive Alpha (α) value of 0.0073 or 0.73%. Since the Alpha is positive, theportfolio outperformed the market. The positive Alpha (α) also indicates that the portfolio managersengaged in good active management. In this analysis, Jensen’s Alpha is computed using the RegressionAnalysis for the Excess Return of the Portfolio and the Market. The intercept of the output line isAlpha (α) and the slope of the line is Beta (β). Figure 14 shows the Characteristic Line of the Portfolio.
  21. 21. 18 | P a g eFigure 14d) Information Ratio or Appraisal RatioThe appraisal ratio is a measure of the return per unit of non-systematic or diversifiable risk. Like theJensen’s Alpha, a positive appraisal ratio indicates good active management. Most of the investmentmanagers are assessed based on their active management capabilities and this is a very important andrelevant measure to be considered for the performance analysis of the portfolio and its managers.It is defined as the ratio of Alpha (α) to the Non-systematic or Diversifiable risk.Appraisal Ratio = Alpha (α) / σ non-systematicThe non-systematic risk is the Standard deviation of the residuals obtained by computing theregression analysis outputs of the Portfolio Excess returns with the Excess returns of the market.The standard deviation of the residuals or non-systematic risk is 1.349% and the Appraisal Ratio is0.5387, which shows that the portfolio has a pretty good abnormal return per unit of Non-systematicrisk.
  22. 22. 19 | P a g eFigure 15The above figure gives us the total diversifiable risk per unit of abnormal return. Comparing it with thesystematic risk, the portfolio had a lot of diversifiable risk and it more than made up for the total risk inthe portfolio.Note: The Jensen’s Alpha and Beta are assumed to be significant, in our analysis for performanceassessment of the Portfolio and its managers.e) Modigliani –Modigliani or M2measureIn this measure the idea is to lever or de-lever a portfolio (i.e., shift it up or down the capital marketline) by creating a matching portfolio whose standard deviation is identical to that of the marketportfolio.The M2of a portfolio is the return that this matching portfolio earned. This return is then compareddirectly to the market return for the period. In our analysis, the matching portfolio was created witharound 70% of funds to be invested in the portfolio and the rest in T-bills. The amount of 70% to beinvested in the portfolio is computed by the ratio of the (σm / σp). The matching portfolio gives us areturn of 0.4626%, which is less than the market return of 0.559%. In this measure, the portfoliounderperformed the market again.
  23. 23. 20 | P a g eFigure 16f) Returns of the Portfolio Versus RiskFigure 17 shows the market risk-return relationship during the trading period. The return of theportfolio is expressed in the positive area. In this case, the return is decomposed into risk andselectivity.The investors’ risk to the return earned is based on the target level of Beta. The managers’ riskcorresponds to the extra risk the manager took than the target level of Beta. In this case, the target wasto keep the Beta very low compared to the market. However, we had a negative Beta and hence had avery low-systematic risk and very high unsystematic risk. In the normal bullish scenario, with this kindof risk-return relationship, the portfolio would underperform the market and vice versa in a bearishenvironment provided the value of Beta is significant.The selectivity, which is further decomposed into net-selectivity and diversification, was positive andindicates good active management. Net selectivity was positive and it indicates abnormal return overthe market. It included returns due to hedging and other active management techniques.
  24. 24. 21 | P a g eFigure 17
  25. 25. 22 | P a g eWith regards to the diversification of the portfolio, the difference between the value of Beta (β=-0.2805) and the ratio of Portfolio Standard deviation to Market Standard Deviation (σp / σm =1.426) ispretty high which indicates lot of unsystematic risk and bad diversification. Even though the portfoliohad different stocks in various sectors both national and international, highly diversified mutual fundsand ETF’s, the diversification could not be seen. This has largely got to do with the simplifiedperformance analysis using S&P 500 as the market benchmark.As for as active management strategies are considered, hedging by futures options proved to beextremely beneficial realizing a profit of $ 60,000 from the strategy in week 10-11.Although, the portfolio underperformed the market in most of the risk adjusted measures, theperformance was quite satisfactory considering the fact that the market benchmark is not quiteappropriate for comparison with a portfolio composed of many different type of assets. The activemanagement played a very important part as indicated by the analysis. The portfolio theorized as agrowth portfolio, would perform much better in the long-term than the figures indicated by theanalysis.CONCLUSIONThe world of investments is unpredictable, even the gurus make mistakes and learn from them. TheSTOCK-TRAK project was extremely helpful to us in terms of learning the art of real life trading.Even though the money we had was virtual, we handled and invested it with precaution just as wewould with real money.The 12 week trading period was like a roller coaster ride with so many unpredictable turn of events.We were truly excited trading, when the S&P 500 recorded a five year high. Though we had thehighest total portfolio return, we still think we should have avoided a few trades.This experience educated us with a few of the most important things such as:• There is NO such thing as sure thing. Some of the stocks which we thought would perform wellfailed,• Always avoid herding as it always leads to a cliff in most of the cases.• Proper Risk Management and Diversification – this helps the portfolio to resist market’s High-Low and single sector malfunctioning.• When to Sell and when to Hold- never to attach your emotions to your portfolio, if the stockwhich once earned you a fortune is currently doing bad, do not hesitate to sell and always use limitand Stop – loss orders.• Be you own advisor- always take your own decisions, never go with anyone else’s word until orotherwise you have done your fair part of research and you are 100% sure.These experiences have made us better investors with good market ethics and behavioral values whichis one of the important key factors to succeed apart from your investing and trading skills.
  26. 26. Exchange Company Name QTY Currency Price Paid Last Price Market Value Profit/Loss P/L % Amount spentUS 19/02/13 General Communications Inc 1209 USD 8.25 9.25 11183.25 -1209 -12.12 9974.25US 19/02/13 Ralph Lauren Corp 74 USD 176.69 172.81 12787.57 -287.49 -2.20 13075.06US 19/02/13 eBay Inc 211 USD 56.96 57.52 12136.72 118.16 0.98 12018.56US 19/02/13 Diageo Shs Sponsored American Deposit Receipt Repr 4 Shs 249 USD 120.03 121.74 30313.26 425.79 1.42 29887.47US 19/02/13 3M Co 294 USD 103.35 107.9 31722.6 1337.7 4.40 30384.9US 19/02/13 Home Depot Inc 296 USD 67.56 71.63 21201 1203.24 6.02 19997.76US 19/02/13 International Flavors & Fragrances Inc 331 USD 74.32 75.06 24844.86 244.94 1.00 24599.92US 19/02/13 Aon PLC 523 USD 57.16 61.48 32154.04 2259.36 7.56 29894.68US 19/02/13 Dover Corp 551 USD 73.13 74.33 40955.83 661.2 1.64 40294.63US 19/02/13 Johnson & Johnson 656 USD 76.16 82.07 53840.74 3879.78 7.77 49960.96US 19/02/13 Nike Inc 1091 USD 54.99 60.43 65929.13 5935.04 9.89 59994.09US 19/02/13 Unilever Shs Sponsored American Deposit Receipt Repr 1 Sh 1256 USD 40.15 42.5 53379.87 2951.47 5.85 50428.4US 19/02/13 Starbucks Corp 1837 USD 54.59 58.07 106674.59 6392.76 6.37 100281.83BO 18/02/13 Reliance Industries Ltd 3333 INR 846.2 781.05 47639.29 -3986.505416 -7.70 51778.67817US 18/02/13 Crosstex Energy Inc. 845 USD 17.79 16.95 709.8 275.9785203US 18/02/13 The New York Times Company 1668 USD 9 10.05 -1751.4BO 18/02/13 ITC Ltd 9450 INR 300.3 284.55 49208.65 -2732.467413 -5.24 52099.04535US 30/01/13 iShs*MSCI*ThCIM*Shs 157 USD 88.45 89.02 13976.16 89.51 0.64 13886.65US 30/01/13 Pwrsh*QQQ*SerI*Shs 268 USD 67.29 70.05 18773.4 739.68 4.10 18033.72US 30/01/13 PowerShares*ETF*Shs*Dynamic*Pharmaceuticals*Portfolio 457 USD 37.04 40.03 18293.66 1366.38 8.07 16927.28US 24/01/13 Amana Mutual Funds Trust Growth Fund 358.9375 USD 27.86 28.29 10154.34 154.34 1.54 9999.99875US 24/01/13 Wells Fargo Advantage Growth Fund Investor Class 361.5329 USD 41.49 41.78 15104.84 104.84 0.70 15000.00002US 24/01/13 Lkcm Equity Fund Institutional 812.1278 USD 18.47 19.42 15771.52 771.52 5.14 15000.00047US 24/01/13 Marsico Flexible Capital Fund 1296.1763 USD 15.43 15.99 20725.86 725.86 3.63 20000.00031US 24/01/13 Laudus Growth Investors U.S. Large Cap Growth Fd 1314.0604 USD 15.22 15.48 20341.65 341.66 1.71 19999.99929US 24/01/13 Touchstone Sands Capital Select Growth Fund Cl Z 1522.07 USD 13.14 13.22 20121.77 121.77 0.61 19999.9998US 26/02/13 DOV PUT 75 May 13 1 USD 3.6 2.95 234 -126 -35.00 3.6US JNJ PUT 85 Apr 13 6 USD 3.35 2.61 1848 -162 -8.06 20.1US 28/02/13 NKE PUT 60 Apr 13 10 USD 1.48 0.34 600 -880 -59.46 14.8US Goodyear*Tire*&*Rubber*Co.*M*10.5%*M*May*2016 1 USD 1091 1091 1091 0 0.00 1091US Fidelity*National*Financial*Inc*M*7.625%*M*Jul*2017 3 USD 1080 1075.5 3226.5 -13.5 -0.42 3240US Capital*One*Financial*Corp*M*10.25%*M*Aug*2039 6 USD 1000.1 1000.1 6000.6 0 0.00 6000.6US TMBOND*7.500%*15MNovM2024 20 USD 1558.87 1584.06 15840.6 251.9 1.62 31177.4US TMBOND*4.625%*15MFebM2040 10 USD 1327.89 1327.89 13278.9 0 0.00 13278.9US TMBOND*5.000%*15MMayM2037 20 USD 1387.27 1387.27 27745.4 0 0.00 27745.4US TMBOND*6.125%*15MAugM2029 10 USD 1499.61 1499.61 14996.1 0 0.00 14996.1US TMBOND*6.250%*15MMayM2030 10 USD 1528.67 1528.67 15286.7 0 0.00 15286.7US TMBOND*6.375%*15MAugM2027 10 USD 1502.27 1502.27 15022.7 0 0.00 15022.7US TMBOND*6.875%*15MAugM2025 10 USD 1526.8 1526.8 15268 0 0.00 15268US Corn Futures(CK/13) May 13 1 USD 6.95 6.465 32325 -2425 -6.98 34750US Futures Options-OZCK13P7350 30 USD 0.2 0.6 90000 60000 200 30000APPENDIX 1
  27. 27. APPENDIX 2!STOCKS PERFORMANCE!!!!!
  28. 28. !!!!!!!
  29. 29. !!!!!!!!862.65!809.5!851!843.8!810.8!773.7!780! 776.35!846.2!781.05!720!740!760!780!800!820!840!860!880!5! 6! 7! 8! 9! 10! 11! 12!Stock&Price&Week&RIL/&Interna2onal&Stock&(Long&Posi2on)&Reliance!Weekly!Stock!Prices!Price!Paid!Price!Sold!
  30. 30. MUTUAL FUNDS & ETF’S PERFORMANCE!!!
  31. 31. !
  32. 32. APPENDIX 3TRANSACTION HISTORYTrade Date Order Symbol Qty Price Commission Amount24/01/13 18:44 MARKET - BUY AMAGX 359 27.86 10 -10,010.0024/01/13 18:45 MARKET - BUY LGILX 1,314 15.22 10 -20,010.0024/01/13 18:45 MARKET - BUY PTSGX 1,522 13.14 10 -20,010.0024/01/13 18:46 MARKET - BUY LKEQX 812 18.47 10 -15,010.0024/01/13 18:46 MARKET - BUY SGROX 362 41.49 10 -15,010.0024/01/13 18:46 MARKET - BUY MFCFX 1,296 15.43 10 -20,010.0030/01/13 9:31 MARKET - BUY THD 157 88.45 10 -13,896.6530/01/13 9:31 MARKET - BUYPJP457 37.04 10 -16,937.2830/01/13 9:31 MARKET - BUY QQQ 268 67.29 10 -18,043.7208/02/13 18:00 MARKET - BUY B-COF-10.250-15082039 4 1000.1 20 -4,218.1008/02/13 18:00 MARKET - BUY B-GT-10.500-15052016 1 1091 20 -1,135.1608/02/13 18:00 MARKET - BUY B-COF-10.250-15082039 2 1000.1 20 -2,119.0508/02/13 18:00 MARKET - BUY B-T-7.500-15112024 1 1558.87 20 -1,596.1308/02/13 18:00 MARKET - BUY B-T-7.500-15112024 9 1558.87 20 -14,205.1708/02/13 18:48 MARKET - BUYB-FNF-7.625-150720173 1080 20 -3,274.4115/02/13 0:00 - B-COF-10.250-15082039 6 51.25 - 307.518/02/13 22:45 MARKET - BUY RIL 3,333 846.2 10 -51,905.0818/02/13 22:45 MARKET - BUY ITC 9,450 300.3 10 -52,226.1619/02/13 9:30 MARKET - SHORT XTXI -845 17.79 10 15,022.5519/02/13 9:30 MARKET - SHORT NYT -1,668 9 10 15,002.0019/02/13 9:30 MARKET - SHORT GNCMA -1,209 8.25 10 9,964.2519/02/13 9:30 MARKET - BUY NKE 1,091 54.99 10 -60,004.0919/02/13 9:30 MARKET - BUY EBAY 211 56.96 10 -12,028.5619/02/13 9:30 MARKET - BUY SBUX 1,837 54.59 10 -1,00,291.8319/02/13 9:30 MARKET - BUY DEO 249 120.03 10 -29,897.4719/02/13 9:30 MARKET - BUY RL 74 176.69 10 -13,085.0619/02/13 9:30 MARKET - BUY AON 523 57.16 10 -29,904.6819/02/13 9:30 MARKET - BUY IFF 331 74.32 10 -24,609.9219/02/13 9:31 MARKET - BUY JNJ 656 76.16 10 -49,970.9619/02/13 9:31 MARKET - SHORT UAL -373 26.25 10 9,781.2519/02/13 9:32 MARKET - BUY MMM 294 103.35 10 -30,394.9019/02/13 9:32 MARKET - BUY HD 296 67.56 10 -20,007.7619/02/13 9:32 MARKET - BUY UL 1,256 40.15 10 -50,438.4019/02/13 9:33 MARKET - BUY DOV 551 73.13 10 -40,304.6326/02/13 0:00 - DOV 551 0.35 - 192.8528/02/13 0:00 - NKE 1,091 0.21 - 229.1101/03/13 9:30 MARKET - COVER XTXI 845 16.95 10 -14,332.7512/03/13 0:00 - HD 296 0.39 - 115.4415/03/13 0:00 - QQQ 268 0.159 - 42.6115/03/13 9:32 MARKET - COVER UAL 373 31.06 10 -11,595.3815/03/13 9:33 MARKET - COVER NYT 1,668 10.05 10 -16,773.4019/03/13 0:00 - IFF 331 0.34 - 112.5426/03/13 0:00 - RL 74 0.4 - 29.628/03/13 14:40 MARKET - BUY C/K3 1 6.9525 20 -2028/03/13 15:48 MARKET - BUY DOV1318Q75 1 3.6 10 -37028/03/13 18:00 MARKET - BUY OZCK13P7350 30 0.1988 600 -30,420.0001/04/13 18:00 MARKET - SELL OZCK13P7350 -30 0.5988 600 89,220.0001/04/13 20:23 MARKET - SELL C/K3 -1 6.465 20 -2,457.5005/04/13 10:32 MARKET - BUY JNJ1320P85 6 3.35 10 -2,020.0005/04/13 10:38 MARKET - BUY SBUX1320P57.5 18 1.12 10 -2,026.0005/04/13 10:42 MARKET - BUY NKE1320P60 10 1.48 10 -1,490.0005/04/13 11:11 MARKET - BUY MMM1320P110 2 5.35 10 -1,080.0005/04/13 11:11 MARKET - BUY MMM1320P110 2 5.35 10 -1,080.0005/04/13 11:11 MARKET - BUY MMM1320P110 2 5.35 10 -1,080.0005/04/13 11:11 MARKET - BUY MMM1320P110 2 5.35 10 -1,080.0005/04/13 11:52 MARKET - BUY C/K3 1 6.3 20 -20
  33. 33. 05/04/13 11:59 MARKET - SELL C/K3 -1 6.295 20 -4508/04/13 9:40 STOP - SELL SBUX1320P57.5 -18 0.65 10 1,160.0009/04/13 15:02 STOP - SELL MMM1320P110 -8 3.7 10 2,950.0011/04/13 1:02 MARKET - SELL RIL -3,333 774.85 10 47,509.3811/04/13 1:02 MARKET - SELL ITC -9,450 287.1 10 49,910.9511/04/13 9:48 MARKET - SELL NKE -1,091 60.57 10 66,071.8711/04/13 9:48 MARKET - SELL PJP -457 40.33 10 18,420.8111/04/13 9:48 MARKET - SELL JNJ -656 82.57 10 54,155.9211/04/13 9:48 MARKET - SELL AON -523 61.91 10 32,368.9311/04/13 9:48 MARKET - SELL HD -296 72.05 10 21,316.8011/04/13 9:48 MARKET - SELL UL -1,256 42.85 10 53,809.6011/04/13 9:48 MARKET - SELL SBUX -1,837 58.24 10 1,06,976.8811/04/13 9:48 MARKET - SELL QQQ -268 69.82 10 18,701.7611/04/13 9:48 MARKET - SELL DOV -551 74.01 10 40,769.5111/04/13 9:48 MARKET - SELL DEO -249 122.4 10 30,467.6011/04/13 9:48 MARKET - SELL IFF -331 74.96 10 24,801.7611/04/13 9:48 MARKET - SELL EBAY -211 57.64 10 12,152.0411/04/13 9:48 MARKET - SELL THD -157 90.18 10 14,148.2611/04/13 9:48 MARKET - SELL RL -74 174.73 10 12,920.0211/04/13 9:48 MARKET - COVER GNCMA 1,209 9.35 10 -11,314.1511/04/13 10:04 MARKET - SELL MMM -294 108.37 10 31,850.7811/04/13 18:49 MARKET - SELL AMAGX -359 28.82 10 10,334.5811/04/13 18:51 MARKET - SELL LKEQX -812 19.7 10 15,988.9211/04/13 18:51 MARKET - SELL MFCFX -1,296 16.32 10 21,143.6011/04/13 18:51 MARKET - SELL LGILX -1,314 15.8 10 20,752.1511/04/13 18:52 MARKET - SELL PTSGX -1,522 13.54 10 20,598.8311/04/13 18:52 MARKET - SELL SGROX -362 42.73 10 15,438.3012/04/13 19:00 MARKET - BUY B-T-6.375-15082027 10 1502.27 10 -15,127.0212/04/13 19:00 MARKET - BUY B-T-6.875-15082025 10 1526.8 10 -15,379.7112/04/13 19:00 MARKET - BUY B-T-4.625-15022040 10 1327.89 10 -13,357.3212/04/13 19:00 MARKET - BUY B-T-7.500-15112024 10 1578.09 10 -16,090.9012/04/13 19:00 MARKET - BUY B-T-5.000-15052037 10 1387.27 10 -14,082.7012/04/13 19:00 MARKET - BUY B-T-6.250-15052030 10 1528.67 10 -15,546.7012/04/13 19:00 MARKET - BUY B-T-6.125-15082029 10 1499.61 10 -15,096.7212/04/13 19:00 MARKET - BUY B-T-5.000-15052037 10 1387.27 10 -14,082.70

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