Portfolio

Strategy
Security Analysis &
Portfolio
Management

Vaibhav Srivastava
PRN - 20020141235
 Portfolio
Stratergy

1. Introduction:-
Portfolio Strategy is a very generic term used to refer to
the manager’s style of managing a portfolio of assets.

In the financial markets, there are many assets

available, such as stocks and corporate bonds,
treasury bills, commodities, currencies, indices,
options, REIT and much more. It is, therefore,
necessary to apply management techniques to manage
portfolios of assets that can delimit some key aspects
such as risk and expected return.

Unfortunately, we cannot get infinite returns with zero

risks, as one depends on the other and if we want to
increase the portfolio return, it will usually be at the
expense of taking more risk.

2. Optimal Portfolio: -
The optimal portfolio consists of a risk-free asset and an
optimal risky asset portfolio. The optimal risky asset
portfolio is at the point where the CAL is tangent to the
efficient frontier. This portfolio is optimal because the
slope of CAL is the highest, which means we achieve the
highest returns per additional unit of risk. The graph
below illustrates this:
3. Complete Portfolio:-
In constructing portfolios, investors often combine risky
assets with risk-free assets (such as government bonds)
to reduce risks. A complete portfolio is defined as a
combination of a risky asset portfolio, with return Rp, and
the risk-free asset, with return Rf.

The expected return of a complete portfolio is given as:

E(Rc) = wpE(Rp) + (1 − wp)R

The slope of the line, Sp, is called the Sharpe Ratio or

reward-to-risk ratio. The Sharpe ratio measures the
increase in expected return per unit of additional standard
deviation.
4. Min Variance Portfolio:-
A minimum variance portfolio indicates a well-diversified
portfolio that consists of individually risky assets, which
are hedged when traded together, resulting in the lowest
possible risk for the rate of expected return.

4. Risky Portfolio:-
Portfolio risk is a chance that the combination of assets or
units, within the investments that you own, fail to meet
financial objectives. Each investment within a portfolio
carries its own risk, with higher potential return typically
meaning higher risk.

In theory, portfolio risk can be eliminated by successful

diversification: holding combinations of investments that
do not depend on the same circumstances to return a
profit. In reality, though, it is more probable that risks will
be minimised and not eliminated entirely.
Portfolio risk is just one of the risks that traders should be
wary of. Most risks apply to individual investments, but it
is also important to ensure that your portfolio as a whole
doesn’t end up working against you.