Corporate Finance Project Report

DIVERSIFICATION IN PORTFOLIO RISK MANAGEMENT:

THE CASE OF THE INDIAN FINANCIAL MARKET

Under the Guidance of:

Submitted by:

Dr. Anju Singla

Kavita Digra (12104042)

Department of Applied Sciences

Aishwarya (12104043)

Corporate Finance

Harisimran (12104046)
Sidharth Singla (12104061)
Ankit Soti (12104069)
I

CONTENTS
Sr. No

TOPIC

Page No.

Chapter 1 - EXECUTIVE SUMMARY

Chapter 2 INTRODUCTION

1. Portfolio Management

2. Objectives Of Portfolio Management

3. Modern Portfolio Theory

Markowitz Efficient Frontier

Mean Variance Analysis

Portfolio Optimization

4. Criticism Of Modern Portfolio Theory

5. Idea Behind This Project

7
8

Chapter 3 INDIVIDUAL AND COMBINED REVIEW

Literature Review-1

Literature Review-2

11

Literature Review-3

13

Literature Review-4

15

Literature Review-5 Concluding

Review

17

Chapter 4 - OBJECTIVES
Construction of Portfolio
Diversification of portfolio
Maximising returns for a defined risk
Portfolio Optimization
Chapter 5 - RESEARCH METHODOLOGY

21

19

22

1. Introduction

22

2. Collection of data 3.
Analysis

22
28

Covariance Table

28

Efficient Frontier

29

Chapter 6 - ANALYSIS

32

II

Chapter 7 FINDINGS

38

Standard Deviation

38

Capital Allocation Graph

38

Regarding Portfolios

Portfolios Obtained In On The Capital Allocation Line

Chapter 8 RESULTS

38
39

40

Optimal Portfolio

40

Investment

40

Assertion

40

Chapter 9 - SUGGESTIONS

41

10

Chapter 10 - CONCLUSION

42

11

Chapter 11- RERFERENCES

43

12

Chapter 12 - APPENDICES

44

Appendix 1 Stock Price of Companies

45

Appendix 2 Return of Companies

46

Appendix 3 Excess Return of Companies

46

Appendix 4 (a) Covariance Matrix

47

Appendix 4 (b) Weighted Covariance Matrix

48

Appendix 5 Calculation of Optimal Portfolio

49
49

Appendix 6 Portfolio Mix

III

LIST OF FIGURES
Fig. No

TOPIC

Page No.

2.1

Organisation practise Portfolio management

2.2

Efficient Frontier Graph

5.1

Solver Function in Excel

31

7.1

Efficient Frontier

39

LIST OF TABLES
Table No.

TOPIC

Page No.

1.1

Companies from Bombay Stock Exchange

1-2

6.1

Summary of Companies

32

6.2

Covariance of 20 companies

33

6.3

Average Return and Standard Deviation

34

6.4

Weighted Covariance

34

6.5

Calculation of Sharpe Ratio

36

6.6

Diversification of Portfolio

36

6.7

Calculation of Optimal Portfolio

37

7.1

Portfolio Mix

38

8.1

Calculation of Highest Sharpe Ratio

41

12.1

Stock Price of Companies

45

12.2

Return of Companies

46

12.3

Excess Return of Companies

46

12.4
12.5

(a) Covariance Matrix

(b)Weighted Covariance Matrix
Calculation of optimal Portfolio

47
48
49

12.6

Portfolio mix

49
IV

ACKNOWLEDGMENT
We would like to express our gratitude to our college PEC University of Technology for
providing us the opportunity to learn under the subject Corporate Finance and study and work
under the same.

We would like to thank our Electrical Engineering Department for giving us an opportunity to
have a first-hand experience of a valuable project that had many challenges involved.

Only words are not sufficient for Dr. Anju Singla, our project guide as her profound
knowledge and great experience in her field helped us a lot during our whole learning
process. We sincerely regard her guidance, principles, and teachings which have uplifted us
morally many times and shall help us in our future life.

We would also like to express our Head of Department, Dr. Tarlochan Kaur, Electrical
Engineering Department for giving us the opportunity to have an experience with the project.

We would thank our fellow classmates who have helped us in getting accustomed with the
basic technologies and software to be used and were keen to help anytime.