Stock Portfolio Formation: BRK-B, CSCO & BA

Running Head: STOCK PORTFOLIO FORMATION: BRK-B, CSCO & BA
STOCK PORTFOLIO FORMATION: BRK-B, CSCO & BA
Submitted by:
SANDEEP SHRESTHA
BUS 550: Financial Management
Presidential Business School
Westcliff University
Submitted to:
Mr. Caesar Rana
August 25, 2019

II
Abstract
This paper analyses the monthly return of Berkshire Hathaway Inc.(BRK-B), Cisco System
Inc.(CISCO), and The Boeing Company (BA) based on adjusted closing price from last past 10
years. Mean, variance and standard deviation are used to measure the risk and return of
individual stock as well as the portfolio. Value at risk is also calculated based on the investment
on portfolio as well as efficient frontier is used to identify the optimum portfolio weight to get
risk and return according to the investor’s need.

III
Stock Portfolio Formation: BRK-B, CSCO & BA
A portfolio is a collection of investments made in different financial assets such as
stocks, bonds, commodities, currencies and cash equivalents. It is said that, don’t put all your
eggs in one basket. Likewise, portfolio formation invests the capital in different investment
instruments to diversify risk and to maximize the overall return on investment. A stock portfolio
comprises of different stocks from various sectors according to the need of the investors such as
aggressive investors will have more fluctuating stock in his portfolio while defensive investors
will have more amount allocated to stocks providing consistent dividends. The portfolio
formation depends on the risk appetite of the investors.
To make a portfolio with optimum risks, I have chosen three stocks from different
sectors, Berkshire Hathaway Inc., Cisco Systems Inc., and The Boeing Company. Berkshire is
from conglomerate type of industry, Cisco is from networking, hardware & software industry,
and Boeing is from aerospace and defense industry. I have chosen this company based on their
nature of business, their growth future potential in the market as well as their price history from
past 10 years.
Company Profiles
Berkshire Hathaway Inc. (BRK-B)
Berkshire Hathaway Inc. is a holding company incorporated on June 16, 1998, that has
been investing in the equities of various business from different industries. The company's
segments include Insurance, Burlington Northern Santa Fe, LLC (BNSF), Berkshire Hathaway
Energy, Manufacturing, McLane Company, Service and retailing, and Finance and financial
products (Berkshire Hathaway Inc, n.d.). Its headquarter is located in Omaha, Nebraska, United
IV
States. The company’s CEO is Warren Buffet who is the third richest person in the world
according to the Forbes 400, 2018. The company is known for having well diverse portfolio of
investment that is earning an average annual growth in its book value by 19%, since 1965. The
company has been trading with the stock symbol of BRK-A (class A shares) and BRK-B (class B
shares).
Cisco Systems, Inc. (CSCO)
Cisco Systems, Inc. is a leading brand in networking for the internet headquartered in San
Jose, CA. It has been designing and selling a range of technologies across networking, security,
collaboration, applications and the cloud based products in the market since 1984 (Cisco Systems
Inc, n.d.). It is doing business in three geographical segments; Americas; Europe, Middle East,
and Africa (EMEA); and Asia Pacific, Japan, and China (APJC). The company has been
providing both hardware and software support to its customers. The company has been trading
with stock symbol CSCO.
The Boeing Company (BA)
Boeing is the world's largest aerospace company and leading manufacturer of commercial
jetliners, defense, space and security systems, and service provider of aftermarket support
(Boeing, n.d.). It is the largest manufacturing exporter of America doing business across 150
countries. The Company operates in four segments: Commercial Airplanes (BCA); Defense,
Space & Security (BDS); Global Services (BGS), and Boeing Capital (BCC) (Boeing Co, n.d.).
It has been trading with stock symbol BA.
Monthly Rate of Return on Individual Stock

V
To form a stock portfolio, you should always be careful on picking individual stocks.
Based on the picking of individual stocks, the overall portfolio returns and risk changes.
Analyzing the past trend in returns based on their stock price is essential. For analyzing the three
mentioned company, I have calculated the monthly rate of return based on their adjusted closing
price from past 10 years i.e. Sep 2009 – Aug-2019. Analyzing past data will help to expect the
future risk and returns.
Table 1
Monthly closing price and return of BRK-B, CSCO & BA of past ten years
Adjusted Closing Stock Rate of Return

Date BRK-B CSCO BA BRK-B CSCO BA
1-Sep-2009 66.46 18.50 28.38 Null Null Null
1-Oct-2009 65.66 17.92 29.43 -1.20% -3.10% 3.69%
1-Nov-2009 67.06 18.39 29.24 2.13% 2.59% -0.64%
1-Dec-2009 65.72 18.81 33.00 -2.00% 2.31% 12.86%
1-Jan-2010 76.43 17.65 38.46 16.30% -6.14% 16.54%
1-Feb-2010 80.13 19.12 56.00 4.84% 8.28% 45.60%
1-Mar-2010 81.27 20.45 39.94 1.42% 6.99% -28.67%
1-Apr-2010 77.00 21.16 36.62 -5.25% 3.46% -8.33%
1-May-2010 70.55 18.20 38.61 -8.38% -14.00% 5.45%
1-Jun-2010 79.69 16.74 37.18 12.96% -7.99% -3.71%
1-Jul-2010 78.12 18.13 36.91 -1.97% 8.26% -0.72%
1-Aug-2010 78.78 15.71 39.79 0.84% -13.35% 7.78%
1-Sep-2010 82.68 17.21 41.33 4.95% 9.55% 3.87%
1-Oct-2010 79.56 17.96 45.18 -3.77% 4.38% 9.32%
1-Nov-2010 79.68 15.05 47.97 0.15% -16.19% 6.18%
1-Dec-2010 80.11 15.89 45.17 0.54% 5.58% -5.84%
1-Jan-2011 81.75 16.62 42.49 2.05% 4.55% -5.92%
1-Feb-2011 87.28 14.58 43.74 6.76% -12.25% 2.95%
1-Mar-2011 83.63 13.47 44.01 -4.18% -7.60% 0.61%
1-Apr-2011 83.30 13.81 40.30 -0.39% 2.52% -8.43%
1-May-2011 79.07 13.25 49.00 -5.08% -4.11% 21.59%
1-Jun-2011 77.39 12.31 35.06 -2.12% -7.08% -28.46%
1-Jul-2011 74.17 12.59 30.97 -4.16% 2.31% -11.66%
VI
1-Aug-2011 73.00 12.40 36.72 -1.58% -1.51% 18.55%

1-Sep-2011 71.04 12.27 35.23 -2.68% -1.08% -4.03%
1-Oct-2011 77.86 14.67 37.16 9.60% 19.55% 5.46%
1-Nov-2011 78.76 14.81 42.08 1.16% 0.99% 13.23%
1-Dec-2011 76.30 14.37 40.88 -3.12% -3.00% -2.84%
1-Jan-2012 78.37 15.61 42.17 2.71% 8.68% 3.16%
1-Feb-2012 78.45 15.85 42.48 0.10% 1.51% 0.73%
1-Mar-2012 81.15 16.86 36.52 3.44% 6.39% -14.04%
1-Apr-2012 80.45 16.07 36.69 -0.86% -4.68% 0.46%
1-May-2012 79.36 13.07 35.10 -1.35% -18.69% -4.33%
1-Jun-2012 83.33 13.74 37.45 5.00% 5.14% 6.69%
1-Jul-2012 84.84 12.76 39.64 1.81% -7.11% 5.85%
1-Aug-2012 84.34 15.34 36.03 -0.59% 20.18% -9.09%
1-Sep-2012 88.20 15.36 36.03 4.58% 0.10% 0.00%
1-Oct-2012 86.35 13.79 38.08 -2.10% -10.21% 5.67%
1-Nov-2012 88.08 15.32 39.56 2.00% 11.08% 3.89%
1-Dec-2012 89.70 16.03 40.57 1.84% 4.68% 2.55%
1-Jan-2013 96.93 16.78 42.68 8.06% 4.68% 5.21%
1-Feb-2013 102.16 17.02 42.14 5.40% 1.41% -1.27%
1-Mar-2013 104.20 17.05 40.60 2.00% 0.19% -3.66%
1-Apr-2013 106.32 17.07 39.84 2.03% 0.10% -1.85%
1-May-2013 114.07 19.84 44.67 7.29% 16.23% 12.12%
1-Jun-2013 111.92 20.02 42.85 -1.88% 0.91% -4.09%
1-Jul-2013 115.87 21.05 42.41 3.53% 5.14% -1.01%
1-Aug-2013 111.22 19.31 46.99 -4.01% -8.27% 10.80%
1-Sep-2013 113.51 19.41 47.75 2.06% 0.51% 1.62%
1-Oct-2013 115.09 18.69 48.83 1.39% -3.71% 2.25%
1-Nov-2013 116.53 17.73 47.18 1.25% -5.12% -3.38%
1-Dec-2013 118.56 18.72 51.49 1.74% 5.55% 9.14%
1-Jan-2014 111.60 18.28 53.12 -5.87% -2.32% 3.16%
1-Feb-2014 115.78 18.33 55.56 3.75% 0.26% 4.59%
1-Mar-2014 124.97 18.85 60.38 7.94% 2.84% 8.67%
1-Apr-2014 128.85 19.43 60.20 3.10% 3.08% -0.29%
1-May-2014 128.34 20.88 58.08 -0.40% 7.44% -3.53%
1-Jun-2014 126.56 21.07 60.31 -1.39% 0.93% 3.84%
1-Jul-2014 125.43 21.39 59.75 -0.89% 1.53% -0.93%
1-Aug-2014 137.25 21.35 58.46 9.42% -0.20% -2.15%
1-Sep-2014 138.14 21.51 58.18 0.65% 0.72% -0.49%
1-Oct-2014 140.16 21.07 59.44 1.46% -2.04% 2.17%
1-Nov-2014 148.69 23.80 55.54 6.09% 12.95% -6.56%
VII
1-Dec-2014 150.15 23.95 59.77 0.98% 0.65% 7.61%

1-Jan-2015 143.91 22.70 58.46 -4.16% -5.21% -2.18%
1-Feb-2015 147.41 25.58 57.31 2.43% 12.68% -1.98%
1-Mar-2015 144.32 23.86 56.73 -2.10% -6.71% -1.02%
1-Apr-2015 141.21 25.18 55.97 -2.15% 5.52% -1.34%
1-May-2015 143.00 25.60 55.12 1.27% 1.66% -1.52%
1-Jun-2015 136.11 23.99 51.25 -4.82% -6.31% -7.02%
1-Jul-2015 142.74 24.82 46.50 4.87% 3.50% -9.27%
1-Aug-2015 134.04 22.78 49.76 -6.10% -8.24% 7.01%
1-Sep-2015 130.40 23.11 48.66 -2.72% 1.43% -2.20%
1-Oct-2015 136.02 25.39 46.42 4.31% 9.90% -4.61%
1-Nov-2015 134.09 24.18 38.19 -1.42% -4.78% -17.74%
1-Dec-2015 132.04 24.10 45.56 -1.53% -0.33% 19.31%
1-Jan-2016 129.77 21.11 48.86 -1.72% -12.41% 7.24%
1-Feb-2016 134.17 23.41 47.27 3.39% 10.90% -3.25%
1-Mar-2016 141.88 25.46 45.32 5.75% 8.75% -4.11%
1-Apr-2016 145.48 24.58 48.51 2.54% -3.44% 7.04%
1-May-2016 140.54 26.22 49.80 -3.40% 6.64% 2.65%
1-Jun-2016 144.79 25.89 52.80 3.02% -1.24% 6.03%
1-Jul-2016 144.27 27.55 48.59 -0.36% 6.41% -7.97%
1-Aug-2016 150.49 28.63 50.14 4.31% 3.92% 3.19%
1-Sep-2016 144.47 28.89 50.68 -4.00% 0.89% 1.08%
1-Oct-2016 144.30 27.94 54.55 -0.12% -3.28% 7.64%
1-Nov-2016 157.44 27.38 54.01 9.11% -2.00% -1.00%
1-Dec-2016 162.98 27.75 50.68 3.52% 1.34% -6.16%
1-Jan-2017 164.14 28.21 53.29 0.71% 1.65% 5.14%
1-Feb-2017 171.42 31.65 54.79 4.44% 12.22% 2.82%
1-Mar-2017 166.68 31.30 56.96 -2.77% -1.11% 3.96%
1-Apr-2017 165.21 31.55 55.49 -0.88% 0.80% -2.58%
1-May-2017 165.28 29.45 54.86 0.04% -6.65% -1.14%
1-Jun-2017 169.37 29.24 58.75 2.47% -0.73% 7.09%
1-Jul-2017 174.97 29.38 61.00 3.31% 0.48% 3.83%
1-Aug-2017 181.16 30.37 61.86 3.54% 3.37% 1.41%
1-Sep-2017 183.32 31.71 71.44 1.19% 4.41% 15.48%
1-Oct-2017 186.94 32.20 72.60 1.97% 1.55% 1.63%
1-Nov-2017 193.01 35.47 80.26 3.25% 10.17% 10.55%
1-Dec-2017 198.22 36.42 76.28 2.70% 2.68% -4.96%
1-Jan-2018 214.38 39.50 75.29 8.15% 8.46% -1.31%
1-Feb-2018 207.20 42.90 76.03 -3.35% 8.60% 0.99%
1-Mar-2018 199.48 41.09 80.84 -3.73% -4.22% 6.32%
VIII
1-Apr-2018 193.73 42.43 76.31 -2.88% 3.26% -5.60%

1-May-2018 191.53 41.25 77.52 -1.14% -2.79% 1.58%
1-Jun-2018 186.65 41.56 76.65 -2.55% 0.75% -1.11%
1-Jul-2018 197.87 40.84 78.86 6.01% -1.72% 2.88%
1-Aug-2018 208.72 46.49 68.70 5.48% 13.84% -12.89%
1-Sep-2018 214.11 47.35 70.80 2.58% 1.84% 3.05%
1-Oct-2018 205.28 44.53 67.25 -4.12% -5.96% -5.00%
1-Nov-2018 218.24 46.91 69.55 6.31% 5.34% 3.42%
1-Dec-2018 204.18 42.46 72.40 -6.44% -9.48% 4.09%
1-Jan-2019 205.54 46.34 72.38 0.67% 9.14% -0.02%
1-Feb-2019 201.30 51.12 76.53 -2.06% 10.32% 5.73%
1-Mar-2019 200.89 53.31 72.06 -0.20% 4.29% -5.85%
1-Apr-2019 216.71 55.25 76.13 7.87% 3.63% 5.65%
1-May-2019 197.42 51.70 77.35 -8.90% -6.42% 1.60%
1-Jun-2019 213.17 54.39 74.02 7.98% 5.19% -4.31%
1-Jul-2019 205.43 55.05 73.60 -3.63% 1.22% -0.57%
1-Aug-2019 197.16 46.61 75.23 -4.03% -15.34% 2.21%
Mean, Variance and Standard Deviation
Mean, variance and standard deviation are the standard tool to measure risk and return of
any given stock. In statistical terms, mean is a measure of central tendency while variance and
standard deviation are a measure of dispersion. Mean is the average of any data. Variance and
standard deviation measures the deviation of return from the average mean.
Table 2
Mean, Variance & Standard deviation of BRK-B, CSCO & BA
BRK-B CSCO BA
Mean 1.01% 1.03% 1.19%
Variance 0.19 0.51 0.76
Standard Deviation 4.32 7.13 8.71
IX
Looking at the data of past 10 years, the average return on BRK-B is 1.01%, CSCO is
1.03% and BA is 1.19%. We can observe that the BA has the highest return among the three
stocks but also high variance and standard deviation meaning higher risk. Also, BRK-B has low
returns comparatively but also has low risks.
Correlation Coefficient
Correlation coefficient measures the relation between any two variables. Correlation
coefficient of 1 indicates strong positive relationship, -1 indicates strong negative (inverse)
relationship, and 0 indicates no relationship at all.
Table 3
Correlation coefficient between BRK-B, CSCO & BA
Correlation Coefficient
Between BRK-B and CSCO 0.35
Between CSCO and BA -0.08
Between BRK-B and BA 0.07
It shows that there is an average positive relationship between BRK-B and CSCO, weak
positive relationship between BRK-B and BA, and weak negative relationship between CSCO
and BA.
Weight Distribution in Portfolio and its Risk and Return
In a stock portfolio, the weight of each stock in the overall portfolio affects the overall
risk and return of the portfolio. It is very essential to distribute weight to each stock in a portfolio
such that we get optimum returns. Further, the risk appetite of the investor vastly affects the
weight distribution in the portfolio.

X
For forming the portfolio from BRK-B, CSCO, and BA, I have chosen different weight
distribution based on their individual mean return, nature of their business and their future
growth potential. I will be investing 40% of my investment in Berkshire Hathaway (BRK-B),
30% in Cisco Systems (CSCO), 30% in The Boeing Company (BA). Berkshire Hathaway has a
very good dividend history. Further, it has the lowest variance and S.D. thus, 40% of the
investment is in it. Cisco Systems and the Boeing company has also good dividend history but
the price fluctuation in these stocks are comparatively higher than Berkshire thus they are given
30% weight. Nonetheless, I am not an aggressive investor and want to distribute risk and return
evenly so, I have chosen the weights accordingly.
Table 4
Portfolio weight distribution, risk and return
Weight Portfolio
BRK-B 40% Mean 1.07%
CSCO 30% Variance 0.17
BA 30% S.D. 4.09
By distributing the above mentioned weight in individual stock, we get the mean return in
portfolio of 1.07%, and variance and S.D. of 0.17 and 4.09 respectively. Comparing with the
individual risk and return of the stock, the portfolio has higher return than BRK-B, and CSCO on
individual basis. Also, the variance and standard deviation of the portfolio is lower compared to
individual stocks. The portfolio has higher return than two individual stocks and lower risk than
all the included stocks.
Chance of Losing 10% value in Portfolio

XI
Assuming my portfolio return follows normal distribution, the chance of losing 10%
value of my portfolio is given as;
Using MS-Excel,
= NORM.DIST (-10%, 1.07%, 4.09%, 1)
= 0.3%
Thus, the chance of losing 10% value of my portfolio is 0.3% which is very low. So,
there is less probability of losing money in my portfolio which is formed by distributing above
mentioned weight in above mentioned stocks. This, also shows that my portfolio is less risky and
well balanced.
Value at Risk (VaR) of Portfolio
Suppose, I am investing $100,000 in my portfolio. Assuming 99% confidence level, the
value at risk of my portfolio is given as,
Using MS-Excel,
= NORMINV (99%, 1.07%, 4.09%)
= 10.6%
Thus, it is found that 10.6% of my portfolio value is at risk assuming 99% confidence
level. 10.6% of my portfolio value means $10,584.26 (10.6% of $100,000) is at risk. This means
that there is 99% probability that 10.6% i.e. $10,585 value of my portfolio is at risk and I should
mentally prepare myself to lose that sum of amount. Value at risk helps to estimate and expect
the value that you are willing to lose in your investment.

XII
Efficient Frontier for My Portfolio Using 100 Random Weights
The efficient frontier is the set of optimal portfolios that offer the highest expected return
for a defined level of risk or the lowest risk for a given level of expected return (Ganti, 2019).
For calculating it, I have taken 100 random weights of these stocks; BRK-B, CSCO, and BA, and
also calculated mean, variance and standard deviation of each combination. It is given as;
Table 5
Random 100 Portfolio weight distribution, and its risk and return
Portfolio Weight Mean Standard

BRK-B CSCO BA Return Deviation Variance
46% 40% 14% 1.66% 4.75% 0.23%
17% 28% 55% 1.38% 5.09% 0.26%
28% 43% 29% 1.49% 4.51% 0.20%
27% 42% 31% 1.48% 4.49% 0.20%
25% 41% 34% 1.46% 4.51% 0.20%
7% 11% 82% 1.27% 7.04% 0.50%
16% 7% 77% 1.35% 6.55% 0.43%
27% 46% 27% 1.48% 4.61% 0.21%
34% 49% 17% 1.55% 4.82% 0.23%
16% 34% 50% 1.37% 4.94% 0.24%
17% 7% 76% 1.36% 6.47% 0.42%
46% 13% 41% 1.64% 4.49% 0.20%
49% 41% 10% 1.69% 4.96% 0.25%
22% 37% 41% 1.43% 4.58% 0.21%
2% 2% 96% 1.21% 8.32% 0.69%
23% 41% 36% 1.44% 4.56% 0.21%
31% 46% 23% 1.52% 4.62% 0.21%
11% 34% 55% 1.32% 5.28% 0.28%
7% 27% 66% 1.28% 5.92% 0.35%
41% 19% 40% 1.60% 4.36% 0.19%
22% 16% 62% 1.41% 5.39% 0.29%
45% 34% 21% 1.65% 4.45% 0.20%
26% 17% 57% 1.45% 5.06% 0.26%
27% 28% 45% 1.47% 4.52% 0.20%
XIII
28% 50% 22% 1.50% 4.77% 0.23%

23% 39% 38% 1.44% 4.54% 0.21%
17% 41% 42% 1.38% 4.78% 0.23%
25% 39% 36% 1.46% 4.49% 0.20%
27% 29% 44% 1.47% 4.50% 0.20%
29% 5% 66% 1.47% 5.70% 0.33%
23% 49% 28% 1.45% 4.74% 0.22%
28% 13% 59% 1.47% 5.18% 0.27%
15% 19% 66% 1.35% 5.73% 0.33%
11% 49% 40% 1.33% 5.08% 0.26%
41% 12% 47% 1.59% 4.63% 0.21%
17% 5% 78% 1.36% 6.64% 0.44%
4% 23% 73% 1.25% 6.43% 0.41%
0% 21% 79% 1.21% 6.95% 0.48%
43% 31% 26% 1.62% 4.32% 0.19%
42% 9% 49% 1.60% 4.76% 0.23%
36% 12% 52% 1.54% 4.82% 0.23%
43% 12% 45% 1.61% 4.58% 0.21%
13% 0% 87% 1.32% 7.44% 0.55%
39% 0% 61% 1.56% 5.50% 0.30%
24% 11% 65% 1.43% 5.59% 0.31%
39% 27% 34% 1.58% 4.25% 0.18%
35% 14% 51% 1.54% 4.75% 0.23%
27% 45% 28% 1.48% 4.57% 0.21%
25% 27% 48% 1.45% 4.65% 0.22%
22% 2% 76% 1.40% 6.48% 0.42%
39% 9% 52% 1.57% 4.87% 0.24%
46% 14% 40% 1.64% 4.46% 0.20%
19% 17% 64% 1.39% 5.55% 0.31%
36% 44% 20% 1.57% 4.61% 0.21%
12% 47% 41% 1.34% 5.02% 0.25%
7% 47% 46% 1.29% 5.29% 0.28%
34% 46% 20% 1.55% 4.66% 0.22%
45% 10% 45% 1.63% 4.63% 0.21%
31% 13% 56% 1.50% 5.00% 0.25%
40% 34% 26% 1.60% 4.33% 0.19%
30% 29% 41% 1.50% 4.39% 0.19%
1% 45% 54% 1.24% 5.72% 0.33%
12% 5% 83% 1.31% 7.08% 0.50%
49% 4% 47% 1.66% 4.87% 0.24%
XIV
39% 35% 26% 1.59% 4.34% 0.19%

44% 7% 49% 1.62% 4.82% 0.23%
25% 4% 71% 1.43% 6.07% 0.37%
39% 13% 48% 1.57% 4.65% 0.22%
31% 11% 58% 1.50% 5.13% 0.26%
50% 28% 22% 1.69% 4.45% 0.20%
40% 27% 33% 1.59% 4.25% 0.18%
10% 30% 60% 1.31% 5.52% 0.30%
26% 29% 45% 1.46% 4.54% 0.21%
24% 0% 76% 1.42% 6.50% 0.42%
44% 7% 49% 1.62% 4.82% 0.23%
4% 4% 92% 1.23% 7.94% 0.63%
5% 32% 63% 1.26% 5.83% 0.34%
25% 3% 72% 1.43% 6.16% 0.38%
16% 32% 52% 1.37% 5.00% 0.25%
45% 44% 11% 1.65% 4.94% 0.24%
20% 22% 58% 1.40% 5.17% 0.27%
28% 29% 43% 1.48% 4.46% 0.20%
46% 48% 6% 1.67% 5.26% 0.28%
45% 28% 27% 1.64% 4.31% 0.19%
10% 15% 75% 1.30% 6.45% 0.42%
47% 21% 32% 1.65% 4.32% 0.19%
42% 22% 36% 1.61% 4.29% 0.18%
11% 35% 54% 1.32% 5.24% 0.28%
34% 47% 19% 1.55% 4.71% 0.22%
30% 33% 37% 1.50% 4.35% 0.19%
29% 42% 29% 1.50% 4.47% 0.20%
47% 11% 42% 1.65% 4.56% 0.21%
50% 44% 6% 1.70% 5.22% 0.27%
18% 21% 61% 1.38% 5.37% 0.29%
47% 49% 4% 1.68% 5.39% 0.29%
6% 9% 85% 1.26% 7.30% 0.53%
21% 34% 45% 1.42% 4.67% 0.22%
38% 32% 30% 1.58% 4.27% 0.18%
6% 21% 73% 1.27% 6.38% 0.41%
33% 36% 31% 1.53% 4.33% 0.19%
Drawing Efficient Frontier with MS-Excel
XV
The right sides of the efficient frontier are the one with higher risk and higher return
while the left sides are the one with low risk and low returns. Here, M is the point which is at the
least risk i.e. 4.31%. Portfolios below these point are not acceptable. It all depends on the risk
appetite of the investors. Portfolio to the right are more suitable for highly risk-tolerant investors
while portfolio to the left are for more risk averse investors.
Conclusion
For forming an optimum portfolio of 3 three stocks, I have selected Berkshire Hathaway
(BRK-B), Cisco Systems (CSCO), and The Boeing Company (BA) based on their nature of
business, historic returns, price trend and their future growth potential. For analysis risk and
return of these stocks, mean, variance, and standard deviation is calculated. Further, to form a
portfolio 40%,30%, and 30% are given to BRK-B, CSCO, and BA respectively which resulted in
portfolio return being more than individual return of two stocks while risk being lowest
XVI
compared to all three stocks. Value at risk is also calculated which is calculated which is 10.6%
of total portfolio value. I should be able to risk 10.6% value of my investment for gaining
through this portfolio. Portfolio weight distribution can also be estimated with the help of
efficient frontier.
XVII
References
Baran, D., Pastýr, A., & Baranová, D. (2016). Financial Analysis of a Selected Company.
24(37), 73-92. doi:https://doi.org/10.1515/rput-2016-0008
Berkshire Hathaway. (n.d.). Retrieved from https://en.wikipedia.org/wiki/Berkshire_Hathaway
Berkshire Hathaway Inc. (n.d.). Retrieved from
https://www.reuters.com/finance/stocks/company-profile/BRKa.N
Boeing. (n.d.). Retrieved from https://www.boeing.com/company/
Boeing Co. (n.d.). Retrieved from https://www.reuters.com/finance/stocks/company-
profile/BA.N
Cisco Systems Inc. (n.d.). Retrieved from
https://money.cnn.com/quote/profile/profile.html?symb=CSCO
Cisco Systems Inc. (n.d.). Retrieved from https://www.reuters.com/finance/stocks/company-
profile/CSCO.O
Ganti, A. (2019, April 1). Efficient Frontier . Retrieved from
https://www.investopedia.com/terms/e/efficientfrontier.asp
Karanovic, G., Bogdan, S., & Baresa, S. (2010). Financial Analysis Fundament For Assessment
The Value Of The Company. UTMS Journal of Economics, 1(1), 73-84. Retrieved from
https://search.proquest.com/docview/761447654?accountid=158986
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). Fundamentals of Corporate Finance
(11th ed.). New York: McGrill-Hill Education.

XVIII
Weygandt, J., Kimmel, P., & Kieso, D. (2013). Financial accounting. IFRS ed. . United States :
America: John Wiley & Sons.

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