Various Portfolio Theories:

1. Traditional Portfolio Theory: Portfolio should be based on several publicly available info such as:
a. News Article
b. Financial Statement
c. Promoter’s Profile & Shareholding
d. Management Profile
e. Co’s. Product & Services
f. Co’s. Competitive Edge
g. Intrinsic Value
h. Expert Opinion
2. Modern Portfolio Theory: Mean Variance Analysis
1) Central Theme:
a. The theory works on maximizing investors satisfaction. An investor will always
compare its return with other investors to determine its satisfaction level.
For same returns, low risk yields higher satisfaction
For same risk, high return yields higher satisfaction
For different risk and return, satisfaction depends on investors risk appetite
b. Every Security has inherent risk that it will not be able to meet its expected
return i.e., Std. Deviation
c. Portfolio Return is always the weighted avg. return of securities in it but
portfolio risk can be less than weighted avg. risk.
d. To reduce the risk of a Portfolio the securities that are inversely related must be
identified
2) Return Calculation:
a. Security Return:
i. Historical Data:
 Single Year
 Multi Year
ii. Future Data
b. Portfolio Return
3) Risk Calculation:
a. Security Risk:
I. Single Security
II. Pair of Securities
b. Portfolio Risk:
I. Two Security Portfolio
II. Three Security Portfolio
III. Importance of correlation co-efficient of Portfolio Risk
IV. Zero Risk Portfolio (r=-1)
V. Min. Risk Portfolio (r=-1)
4) Efficient Portfolios
5) Assumptions and criticisms
6) Corner Theory for Efficient Portfolios
7) Capital Allocation Line & Capital Market Line
3. Capital Portfolio Theory:
4. Arbitrage Portfolio Theory:
5. Portfolio Rebalancing Theory:
6. Efficient Market Hypothesis:
7. Portfolio Theory:
8. Portfolio Theory: