Construction of efficient portfolio depends on the selection of right asset classes and right securities that will leads to optimum portfolio performance. In this report, the correlations between the average return of different sectors of Dhaka Stock Exchange have been calculated to choose the sectors with minimal correlation of return. Four major sectors with negative correlation among them has been selected and sixteen growth stocks from these sectors has been identified to construct this portfolio. Using the portfolio optimization technique, the weight of these stocks has been determined under the situation of objective functions and constraints.
In case of maximizing portfolio theta while short sales are not allowed, the optimum results suggests to invest 65.20% in BATBC, 20.89% in WATACHEM, 11.35% in JMISMDL, and rest 2.57% in GEMINISEA. The theta of this portfolio in this case is 21.41%. The weights vector has been calculated while short sells are allowed and objective function is to maximize the theta of this portfolio. Moreover, the weights vectors has been determined for different objective functions such as minimizing portfolio risk and different set of constraints.
3. • Stock
Asset
Class
• Food & Allied, Fuel and Power,
Telecommunication, Pharmaceuticals
& Chemicals
Sectors
• Based on the correlation matrix
between the monthly returns of
different sectors of DSE. (Appendix 1)
Rationale
4. Sectors Name of the Company Ticker P/E P/B Dividend
yield
Pharmaceutics
&
Chemicals
RECKITTBEN Reckitt
Benckiser(Bd.)Ltd
51.11 47.57 0.02
MARICO Marico Bangladesh
Limited
24.54 19.56 0.00
PHARMAID Pharma Aids 38.20 8.74 0.01
JMISMDL JMI Syringes & Medical
Devices Ltd.
26.30 2.58 0.02
WATACHEM Wata Chemicals
Limited
75.43 3.62 0.00
SQURPHARMA Square Pharmaceuticals
Ltd.
20.74 4.59 0.01
ORIONINFU Orion Infusion Ltd. 32.44 4.45 0.03
Food & Allied
GEMINISEA Gemini Sea Food Ltd. 76.22 27.84 0.00
BATBC British American
Tobacco bangladesh
Company Limited
26.96 10.37 0.02
OLYMPIC Olympic Industries Ltd. 32.34 10.10 0.02
APEXFOODS Apex Foods Limited 80.69 1.21 0.01
AMCL(PRAN) Agricultural Marketing
Company Ltd. (Pran)
30.88 2.98 0.01
Fuel and Power
EASTRNLUB Eastern Lubricants Ltd. 26.44 6.97 0.01
LINDEBD Linde Bangladesh
Limited
22.44 5.84 0.01
MJLBD MJL Bangladesh
Limited
16.24 3.28 0.04
Telecommunication GP Grameenphone 21.32 19.25 0.04
5. • Monthly closing price from 2011 to
2017Price Data
• Cash Dividends , Stock Dividends,
and Stock SplitsAdjustments
• 𝑅𝑡 = 𝐿𝑛(
𝑅 𝑡
𝑅 𝑡−1
)
Return
Series
•The average of the cut-off yield of
•The cut of yields of 364 days T bills of
Bangladesh Bank for last seven years
Risk Free
Rate
6. Company Weight Company Weight
RECKITTBEN 0.00% BATBC 65.20%
MARICO 0.00% OLYMPIC 0.00%
PHARMAID 0.00% JMISMD
L
11.35%
APEXFOODS 0.00% AMCL(PR
AN)
0.00%
WATACHEM 20.89% EASTRN
LUB
0.00%
SQURPHARMA 0.00% LINDEB
D
0.00%
ORIONINFU 0.00% MJLBD 0.00%
GEMINISEA 2.57% GP 0.00%
Portfolio Return 2.22%
Portfolio excess return 1.57%
Portfolio variance 0.54%
Portfolio standard deviation 7.34%
Theta 21.41%
Total Weight 1
7. Company Weight Company Weight
RECKITTBEN -49% BATBC 121%
MARICO 22% OLYMPI
C
14%
PHARMAID 33% JMISMD
L
101%
APEXFOODS 32% AMCL(P
RAN)
-217%
WATACHEM 25% EASTRN
LUB
17%
SQURPHARMA -33% LINDEB
D
65%
ORIONINFU -5% MJLBD -35%
GEMINISEA -3% GP 11%
Portfolio Return 5.58%
Portfolio excess return 4.93%
Portfolio variance 1.78%
Portfolio standard deviation 13.33%
Theta 36.95%
Total Weight 1