Portfolio

correlation between returns and of the portfolio and the market portfolio. An absolutely diversified portfolio will correlate accurately with completely diversified market portfolio since only has a systematic risk. Portfolio performance measures are the most important aspects of the investment process. Performance measures enable the availability of information necessary for investors to make a decision on how effectively the money has been invested or should be invested. Evaluation of risk-adjusted returns enable the investor to have a clearer view of the market expectations. Treynor Portfolio Performance Measure (reward to volatility ratio) This performance measure was developed in 1965 by Jack Treynor to evaluate funds based on what is known as Treynor’s Index. Treynor’s Index is the ratio of return from a fund over and above the risk-free rate of return for a given period and the systematic associated risk. With this CAPM we can determine the how the security and the market related. Deviations from Treynor’s view are expected to cancel out wherever there is a fully diversified portfolio. If Treynor’s Index is high, it…

Chapter 11: Application Portfolio Management 1. The CIO is concerned about the ever increasing cost of maintaining the inventory of IT applications in the organization. He has asked you to meet to discuss why this proliferation of applications is occurring? One of the main causes of the ever-growing costs of upholding different technologies, is simply that they are not being disposed when they are stop being relevant. A number of these applications provide obsolete functionality or are…

Markowitz Portfolio Theory One of the major area of finance is optimizing the portfolio. Basically, portfolio theory deals with the risk and value of portfolio instead of individual securities, which is known as Markowitz portfolio theory that is suggested by Harry Markowitz in his article “Portfolio selection” in the Journal of Finance. Markowitz portfolio theory basically helps in making optimum portfolio by interpreting, and evaluating risk and return of different risky assets. Basically, the…

among the 20 stocks that remain in his portfolio. This entails maintaining a low correlation among the remaining stocks. For example, in part (a), with ρ = 0.2, the increase in portfolio risk was minimal. As a practical matter, this means that Hennessy would have to spread his portfolio among many industries; concentrating on just a few industries would result in higher correlations among the included stocks. 2. Risk reduction benefits from diversification are not a linear function of the number…

tradeoff, where if there is high risk it will compensate with high return as well as the low risk with lower return. The risk can be classified into two types which are systematic (uncontrollable) risk and unsystematic (controllable) risk. The examples of systematic risk are the interest rate risk, inflation risk, foreign exchange risk, country risk, political risk and market risk. Meanwhile, the example of unsystematic risk is business risk, liquidity risk and credit risk. However, all this…

The modern portfolio theory was based on risk and return trade-offs and was developed in earlier works of Harry Markowitz (1952, 1959) and Roy (1952). According to Markowitz (1952), risk can be eliminated through diversification by spreading the wealth across the assets. In his work, Markowitz (1959) implemented the theory of mean-variance of market portfolio which provided the initial foundation for capital asset pricing model. His model was a static model which assumed that investors tend to…

plan’s current investment management firm has experienced an alarming rate of staff turnover in the past two years. The high level staff turnover could significantly impact the effectiveness of the company in relation to achieving its objectives and performance standards. For instance, the company has lost two junior research analysts and the Canadian equity team portfolio manager, Ross Webb. Mark Palabino, the US equity portfolio manager, became the acting Canadian equity portfolio manager for…

The most popular and father of all models in asset pricing (CAPM) from Sharpe (1964) and Lintner (1965a) was developed independently of each other using the portfolio theory to deduce a market equilibrium. Portfolio theory with a riskless asset and unlimited short sales was the basis for this model (Krause, 2001). To add to the charateristics of accumulating portfolio theory to ascertain the market stability, it also considers the decision of a sole investor. Given the price Sharpe (1964) and…

Portfolio- Budgeting for Retirement Budgeting promotes a foundation and a plan of action. In Proverb 21:5, it talks a strongly about having a plan and how having a plan is important because there would not be a lot of hasty decisions being made with a plan in order. God is about plans frequently in the Bible and he or she can see the success of planning shred through many biblical leaders in the Bible. Jesus had a plan, Moses had a plan, and even Daniel had a plan to defeat the giant. Having a…

Assignment 1: PORTFOLIO MANAGEMENT Student Name Professor Name University Name Course Name Date Assignment 1: PORTFOLIO MANAGEMENT RELATIONSHIP BETWEEN RISK AND RATE OF RETURN The risk free rate refers to the interest that a stockholder would potentially have in terms of risk free investment, that too, over a specified time period. In simple words, it can be said that risk free rate is the least of the anticipated return in terms of investment by stockholder since he is not…