Security Analysis and Portfolio Management

CIA-3

TO CONSTRUCT AND REVISE PORTFOLIOS BASED

ON RISK-RETURN ANALYSIS OF AN INVESTORS

Submitted By: Submitted To:

Name: Usha Karki Prof. Harish VK

Reg No.: 2120829

Section: 5BBA-H
 Table of Contents

S.N Title Page No.

1 Introduction 2
2 Investor 1 6
1.1 Portfolio 6
1.2 Investor’s Portfolio Analysis 9
1.3 Returns Analysis 10
1.4 Indicators of risk-return analysis 13
1.5 Investor’s Approach 16
1.6 Formulas 16
1.7 Portfolio outcome 17
1.8 Suggestions 17

3 Investor 2 18
2.1 Portfolio 18
2.2 Portfolio Return 20
2.3 Returns Analysis 22
2.4 Investor’s Approach 22
2.5 Portfolio Outcome 23
2.6 Suggestions 23

4 Investor 3 24
3.1 Portfolio 24
3.2 Portfolio Return 26
3.3 Return Analysis 28
3.4 Investor’s Approach 28
3.5 Portfolio Outcome 29
3.6 Suggestions 29

5 Conclusion 30
6 References 32

1
Introduction

Investment is defined as investing money into an asset with the potential to increase in value,
provide income, or do both. For example, you can purchase equity shares in a company that is
traded publicly with the expectation of obtaining regular dividends and capital appreciation in
the form of share price growth. When you put the money into assets that have investment risk or
a degree of insolvency, they become investments. Investments help to generate capital that may
be used as a cushion for emergencies, a retirement corpus, to purchase a house, or to pay for
other things.

Fig 1: Important of investment

Source: Author compilation

2
 Table 1: Types on investments

Source: Author compilation

Portfolio management is an important part of finance and investment. It involves the process of
creating and managing collection of assets, such as stocks, bonds, real estate and other financial
instruments on the basis of different investing strategies to achieve specific financial goals while
effectively managing risk. Portfolio management's main goals are to maximize returns while
reducing risks and matching the investment plan to the financial goals, time horizon, and risk
tolerance of an individual or institutional investor. It is a dynamic, continuous process that needs

3
constant observation and modification to keep up with changing investor situations as well as
changing market circumstances.
Individuals or professionals managing portfolios for financial institutions need to choose
investments carefully in order to ensure diversification, asset allocation, and security selection.
They create portfolios that find a balance between the potential for returns and the amount of risk
an investor is willing to take using a variety of techniques and analytical tools. Depending on the
investor's preferences and objectives, these strategies can range from aggressive, growth-oriented
portfolios to conservative, income-focused ones.
Financial goals like wealth preservation, income generation, or wealth accumulation can be
accomplished with the help of effective portfolio management. In order to assist investors in
making wise decisions and navigating the complex environment of financial markets, this
multidisciplinary field integrates concepts from economics, finance, risk management, and
behavioral psychology. Achieving successful wealth management and investment requires an
understanding of portfolio management principles, regardless of whether one is an individual
seeking to safeguard their financial future or an institutional investor managing huge amounts of
money.
Risk analysis is another very important part of finance and investment. Risk analysis is a
systematic and essential method that involves identifying and evaluating any uncertainties or
risks related to a specific choice, course of action, or investment. This crucial phase in the
decision-making process includes identifying different external and internal elements that could
have negative effects. The next step is risk assessment, where each risk's likelihood and possible
impact are calculated. To quantify these uncertainties, probability distributions, past data, and
expert judgment are frequently used. The development of risk management or mitigation
techniques follows, such as risk acceptance, transfer, reduction, or avoidance. Risks can
sometimes be measured in monetary terms, which makes financial risk analysis particularly
important because it enables decision-makers to evaluate risks in monetary terms. Since risks
change over time and new ones could appear, it's crucial to continuously monitor and
periodically reevaluate risks in order to adjust to evolving conditions.

4
 Table 2: Trade-offs between different asset and investment options

Source: Author Compilation

Looking into depositing immediate funds into a high-liquidity savings account for a balanced
investing plan. If investors have a medium risk tolerance, then they can choose fixed deposits
with higher returns over 7 to 10 years. For the long-term, investors looking for a combination of
liquidity and moderate risk may find gold attractive over the next 5 to 15 years. Equity stock
markets provide possible significant returns amid volatility for people with a high-risk tolerance
and a long-term view (3 to 30 years). Equity mutual funds offer a good compromise, with an
average time horizon of 5 to 10 years and a risk tolerance of medium to high. Public Provident
Fund (PPF) stands out as a low-risk, tax-advantaged alternative that is optimal for expected,
tax-free returns over 15 years or more. While real estate needs a long-term commitment (10
years or more), it can provide moderate returns with minimal liquidity. An investor's portfolio

5
should be diversified based on their financial goals and risk tolerance. A balanced strategy can
include a combination of equities mutual funds for potential growth, PPF for stability and tax
benefits, and a part in gold for diversity.

Investor 1 - Barshat Khakurel

Barshat Khakurel , a young, active accountant at Vianet Communication Ltd., is 27 years old.
Barshat’'s investment profile shows that he is confident in taking on a lot of risks, according to
an evaluation used to analyze his risk. This shows that he is open to risky investment possibilities
in search of major returns, which is in keeping with his exciting and risky investing style. He has
also invested in some stocks which are undervalued, showing his capacity to assume significant
risks in return for future rewards.

1.1 Portfolio
Motilal
SBI UTI
Tatacom MFSL. IOC SPAN Oswal
Date Sensex Sensex Total RI
m BO Ltd DANA NASDAQ
ETF ETF
100 ETF
May-2 881.8020 782.95 69.60 409.35 102.18599 563.96002 562.330 3372.18
2 02 0012 7727 0006 7 2 017 5783
1031.980 860.15 68.38 102.18599 611.84997 607.640 3708.69 0.09978
Jun-22 426.5
713 0024 9 7 6 015 5725 985846
1185.241 823.90 67.02 102.18599 633.36999 628.030 3992.25 0.07645
Jul-22 552.5
333 0024 9663 7 5 029 7041 850105
Aug-2 1134.828 64.91 536.45 102.18599 611.55999 607.479 3821.16 -0.0428
763.75
2 613 2979 0012 7 8 98 7579 5532225
1242.017 707.65 66.17 613.29 102.18599 646.53997 4020.86 0.05226
Sep-22 643
212 0024 3431 9988 7 8 663 126488
Oct-22 1284.142 705.79 74.31 552.04 102.18599 672.39001 669.5 4060.38 0.00982

6
 944 9988 7848 9988 7 5 678 8764204
Nov-2 1257.358 677.45 74.17 102.18599 650.20001 4001.36 -0.0145
590 650
2 032 0012 2417 7 2 647 3563742
1216.366 835.54 79.26 571.15 102.18599 634.669 4076.20 0.01870
Dec-22 637.02002
943 9988 268 0024 7 983 5635 340184
1192.196 692.45 73.73 577.15 632.14001 3894.43 -0.0445
Jan-23 97.760002 629
411 0012 6107 0024 5 2571 9369332
1228.057 75.52 532.59 104.38999 3833.84 -0.0155
Feb-23 635 630.27002 628
617 9816 9976 9 7428 5686018
Mar-2 1252.425 639.65 78.92 595.59 103.97000 647.969 3971.26 0.03584
652.72998
3 293 0024 3325 9976 1 971 857 418644
Apr-2 1280.985 706.95 87.26 716.95 114.83000 673.19000 4248.66 0.06985
668.5
3 962 0012 1665 0012 2 2 7655 150465
May-2 1573.004 811.09 88.52 717.20 119.45999 694.91998 690.210 4694.41 0.10491
3 761 9976 211 0012 9 3 022 6863 50567
90.89 126.04000 715.57000 714.010 5079.26 0.08198
Jun-23 1773.75 814.25 844.75
7568 1 7 01 7586 051733
1790.400 89.09 123.83000 701.40997 5163.23 0.01653
Jul-23 932.75 827.75 698
024 9998 2 3 9997 238574
Aug-2 1930.449 910.29 90.94 834.95 711.30999 5302.77 0.02702
120.57 704.25
3 951 9988 9997 0012 8 9946 565619
1608.699 905.45 86.90 882.15 116.48999 690.92999 687.210 4977.83 -0.0612
Sep-23
951 0012 0002 0024 8 3 022 0002 7916816

Soure: Author Compilation

Interpretation

With an impressive positive return of 881.80 on May-22, Tatacom led the pack and had a big
influence on the performance of the whole portfolio. Closely remaining MFSL.BO made a
substantial contribution as well, providing positive returns of 782.95. IOC Ltd's energy sector
contributed 69.61 to the entire portfolio. SPANDANA made a contribution of 409.35 in the

7
microfinance sector. The tech-heavy NASDAQ index also contributed to the Motilal Oswal
NASDAQ 100 ETF's 102.19 gain. SBI Sensex ETF and UTI Sensex ETF both reported positive
returns of 563.96 and 562.33, respectively, corresponding to the larger market. The portfolio as a
whole, which came to 3372.19, had good progress. With every component contributing in a
different way to the total increase, these positive returns show that the portfolio performed
favorably on May 22.

Tatacom set a positive performance on June 22 with a return of 1031.98, which was followed by
MFSL.BO, which added 860.15 to the portfolio as a whole. IOC Ltd provided 68.39 in the
energy industry, while SPANDANA contributed 426.5 in the microfinance sector. Tech-related
factors had an impact on the Motilal Oswal NASDAQ 100 ETF, which contributed 102.19. SBI
Sensex ETF and UTI Sensex ETF increased 611.85 and 607.64 points, respectively, to match the
wider market. The portfolio as a whole returned 3708.70, demonstrating continuous growth. The
Return on Investment (RI) number of 0.0998 represents the return on investment compared to the
initial investment, indicating a good market situation for the portfolio on June 22.

Tatacom maintained its strong trend in July-22, contributing 1185.24, while MFSL.BO added
823.90, confirming the overall portfolio success. IOC Ltd gained 67.03 points, confirming the
energy sector's steadiness. SPANDANA made a 552.5 contribution, demonstrating its influence.
The Motilal Oswal NASDAQ 100 ETF, which tracks the technology sector, gained 102.19
points. The broader market was represented by SBI Sensex ETF and UTI Sensex ETF, which
contributed 633.37 and 628.03, respectively. A consistent increase was shown in the 3992.26
total portfolio return. With a Return on Investment (RI) value of 0.0765, the portfolio is likely to
continue to experience favorable market circumstances in July which shows positive returns in
contrast with the initial investment.

The portfolio had a mixed performance from August 22. Motilal Oswal NASDAQ 100 ETF, UTI
Sensex ETF, and IOC Ltd. had positive returns, but Tatacom, MFSL.BO, SPANDANA, and SBI
Sensex ETF had negative returns. The Return on Investment (RI) for the entire portfolio was
-0.0429, which implies a little fall in value from the initial investment. The average return was
3821.17. Positive returns across all components resulted in a total return of 4020.87 and an RI of
0.0523 for the week of September 22. The bullish trend continued on October 22, with a total

8
return of 4060.39 and a marginal RI of 0.0098. A minimal decline occurred on November 22,
even though as seen by the total return of 4001.37 and the RI of -0.0145.

The portfolio generated positive returns across all components on December 22, producing a
total return of 4076.21 and a return on investment (RI) of 0.0187. However, performance
dropped from January to January 23, with a total return of 3894.43 and an RI of -0.0446,
indicating a reduction in the portfolio's value. February 23 followed a similar pattern, with a total
return of 3833.85 and a slightly improved RI of -0.0156. March 23 was a turning point, with a
total return of 3971.27 and an RI of 0.0358. The increasing trend continued on April-23, with a
total return of 4248.67 and an RI of 0.0699. May-23's performance was strong, with a total return
of 4694.42 and an RI of 0.1049, showing a significant increase in the portfolio's worth. The
bullish trend continued in June and July, with total returns of 5079.27 and 5163.24, respectively,
and RIs of 0.0820 and 0.0165. Despite this, August 23 saw a drop in performance, with a total
return of 5302.78 and a RI of 0.0270. September-23 saw a significant drop, with a total return of
4977.83 and an RI of -0.0613, suggesting a fall in the overall value of the portfolio.

1.2 Investor’s Portfolio Analysis

RM-RM RM-RM _ * RM-RM

RM RI (BAR) RI-RI(BAR) RI-RI _ (BAR)^2

0.087324345
0.09978986 0.07484894 0.07389171 0.00553072 0.00560236
31
0.035029841
0.07645850 0.03502984 0.07645850 0.00267833 0.00122709
68
-0.03744241
-0.04285532 -0.03744242 -0.04285532 0.00160461 0.00140193
849
0.053693157
0.05226126 0.05369316 0.05226126 0.00280607 0.00288296
74
0.041424724 0.00982876 0.04142472 0.00982876 0.00040715 0.00171601

9
 48
-0.03481376
-0.01453564 -0.03481377 -0.01453564 0.00050604 0.00121200
782
-0.02447627
0.01870340 -0.02447628 0.01870340 -0.00045779 0.00059909
882
-0.02028072
-0.04459369 -0.02028072 -0.04459369 0.00090439 0.00041131
257
0.003224742
-0.01555686 0.00322474 -0.01555686 -0.00005017 0.00001040
531
0.040625585
0.03584419 0.04062559 0.03584419 0.00145619 0.00165044
05
0.025983968
0.06985150 0.02598397 0.06985150 0.00181502 0.00067517
5
0.035320829
0.10491506 0.03532083 0.10491506 0.00370569 0.00124756
17
0.029430846
0.08198052 0.02943085 0.08198052 0.00241276 0.00086617
08
-0.02531158
0.01653239 -0.02531158 0.01653239 -0.00041846 0.00064068
462
0.019970083
0.02702566 0.01997008 0.02702566 0.00053970 0.00039880
02
-0.03009683
-0.06127917 -0.03009684 -0.06127917 0.00184431 0.00090582
921
19.96% 41.44% 0.1871311 0.3884723 0.0252846 0.0214478
Soure: Author Compilation

1.3 Returns Analysis:

Average Monthly Return: The average annual value estimated from investing can be described
as the average rate of return. The average rate of return (ARR) benefits both companies and
individuals in navigating financial decisions. It facilitates identifying the investment

10
opportunities that have the potential to generate larger profits and more growth. Understanding
how it works will help investors make informed personal or professional investing decisions. An
investor or analyst can determine the past performance of a stock or investment, or the returns of
a portfolio of companies, by looking at the average return.

Average Return= Number of Returns/Sum of Returns​. The portfolio above has an average
return of about 1.02%. This shows that the portfolio has given positive returns each month,
which means that the portfolio has grown in value over time. This is the desired outcome for an
investor, as it means that on average, the investments have been profitable.

Total Return: Total return is a holistic measure of investment performance that encompasses
both capital gains and income from dividends or interest. It is useful for evaluating investment
possibilities and determining their risk and return. By offering a comprehensive assessment of an
investment's performance, total return enables investors to assess the real growth of their
portfolios and make informed strategic decisions depending on their objectives and risk
tolerance. The total return for the entire period has been about 41.44%. This means that, in total,
the investor has gained 3% profit over the given time period from his investment.

Monthly Return Variability: Since returns can differ every year there is a substantial
correlation between high return variability and risk. Conversely, low variability is linked to a
lower level of risk since returns fluctuate less. The higher the variability, the greater the
uncertainty of obtaining a return that is certain. Investors frequently utilize return variability to
evaluate different investment opportunities. Risk-averse investors will always prefer investments
with minimal variability.
Here, the monthly return variability has varied from -4.45% to 9.97%. This shows there is a big
variation in monthly return variability, which means that the portfolio’s performance has not
been consistent and has experienced both gains and losses over different periods.

Total Portfolio Return: Portfolio return is the loss or gain achieved by a portfolio of
investments that includes multiple kinds of investments. By maintaining a diverse portfolio of
stocks and bonds or a specific combination of the two asset types, it seeks to satisfy the selected
benchmarks. Based on the stated investment strategy objectives and risk tolerance, portfolios are

11
designed to generate returns. A balanced return over time is usually the goal of investors, who
are generally interested in one or more sets of it. Investors can choose from an array of portfolio
options, including debt, stocks, and balanced funds that include bonds, cash, and bonds.

Total Portfolio Return (%) = [(Ending Portfolio Value - Initial Portfolio Value) / Initial
Portfolio Value] * 100

Assuming an initial portfolio value of 100 (for ease of calculation), the calculation would be:
Total Portfolio Return (%) = [(150.89 - 100) / 100] * 100 = 50.89%
So, the total portfolio return for the specified period is approximately 22.97%. If your initial
portfolio value is different, you can adjust the calculation accordingly.

Risk-Adjusted Performance: The profit or potential profit from an investment that takes into
consideration the level of risk required for the investor to earn it is referred to as a risk-adjusted
return. The risk is calculated in relation to a nearly risk-free investment. Depending on the
approach used, the risk calculation is expressed as a number or a rating. Individual stocks,
mutual funds, and entire portfolios are all subject to risk-adjusted returns.

Beta: If the beta value of a portfolio is 1.0, it means that the portfolio tends to move in line with
the market or benchmark index; if the beta value is less than 1.0, it indicates that the portfolio is
expected to be less volatile or have lower market sensitivity than the benchmark index; and if the
beta value is more than 1.0, it suggests that the portfolio is expected to be more volatile or have
more market sensitivity than the benchmark index. The beta value of the above portfolio is 1.655
which is greater than 1.0 so the portfolio is expected to be more volatile.

Alpha: If the alpha value of a portfolio is zero, it means that the portfolio has generated as
expected given the risk involved; if the alpha value is less than zero (negative), it indicates that
the portfolio has generated a lower return than what would be expected based on the level of
risk; and if the alpha value is more than zero (positive), it suggests that the portfolio has
generated a higher return than what would be expected based on the level of risk. The alpha

12
value of the above portfolio is 0.2148 which is positive, so the portfolio is slightly
overperforming the expectation based on the level of risk involved.

Total Risk vs. Systematic Risk: Total risk is classified into two categories: systematic risk and
unsystematic risk. Systematic risk is associated with broad market characteristics that affect the
whole investment environment, whereas unsystematic risk is specific to individual assets.
Systematic risk refers to situations beyond an individual's control and linked to market dynamics.

1.4 Indicators of risk-return analysis

A key component of financial decision-making is risk-return analysis. Fundamentally,
risk-averse investors want a risk premium on riskier assets as payment for taking on greater risk.
Portfolio primary finding is that individual risk and systematic or market-wide risk may be
separate from one another when evaluating a company's risk, at least as determined by the
distribution of its past stock returns. Investors only receive a risk premium for the market risk
component because particular risks may be diversified out of a portfolio.

Fig: 2: Indicators of risk-return analysis

Source: Author Compilation

13
 Table 3: Indicators of risk-return analysis

Indicators Meaning Relationship between the

outcome

Rm (Bar) The benchmark index, also A higher return on assets than

referred to as market return the benchmark implies
(RM), is an indicator that outperformance, while a
indicates the market's total lower return indicates
return. This serves as an underperformance. In global
indicator to evaluate an fluctuations in the market, the
investment portfolio's RM bar provides investors
profitability. with a useful insight into the
overall condition and growth
of their portfolio.

Ri (Bar) The return on a specific stock Comparing each asset's RI to

or asset (RI) reflects the the total market return (RM)
success of a single investment aids in determining the stock's
in your portfolio. It represents relative performance. A lower
the gain or loss of that RI denotes
specific stock or asset over a underperformance, whereas a
given time period. A positive greater RI implies the asset
RI implies a profit, whereas a has outperformed the market.
negative RI indicates a loss.

Beta (β) It is the measure of the The given portfolio has a beta
volatility or systematic risk of value of 1.655 which is
a portfolio compared to the greater than 1.0 so the
market as a whole or a certain portfolio is expected to be
benchmark index. more volatile.

14
Alpha (α) It measures the excess return The given portfolio has an
of a portfolio compared to a alpha value of 0.2148 which
benchmark index, considering is positive, so the portfolio is
the risk involved in the slightly overperforming the
investment. expectation based on the level
of risk involved.

Relative Strength Index (RSI)
It is a momentum indicator Its value ranges from 0 to
that measures the speed and 100. If the RSI of a security is
magnitude of a security’s above 70, it is considered
recent price to determine overvalued, while if the value
whether the security is is below 30, it is considered
overvalued or undervalued. undervalued.

Simple Moving Average It indicates the average price An increasing SMA indicates
(SMA) of a security over a specified an uptrend in the price, while
number of periods a declining SMA indicates a
downtrend.

Stochastic Oscillator (SO) It is a momentum indicator Its value ranges from 0 to

that compares a particular 100. Values above 80 are
closing price of a security to a considered overbought, and
range of its prices over a values below 20 are
certain period of time. considered oversold.

Exponential Moving Average IT indicates the direction, It is similar to SMA but is

(EMA) strength and potential reversal more responsive to short-term
points of a security’s price price changes compared to
trend by placing greater the SMA. IT is particularly
weight on recent price data. helpful for identifying

15
 short-term trends and
generating trading signals.

Soure: Author Compilation

1.5 Investor’s Approach

1. Growth-Oriented Investor: This portfolio could be appealing to a growth-oriented investor
because of its recent notable gains. They might try to profit from companies that have had
rapid growth, like Motilal Oswal NASDAQ 100 ETF and Tatacomm. In general, these
investors are more inclined to assume greater risk in exchange for possible higher returns.

2. Diversified Investor: The portfolio includes telecommunications (Tatacomm), financial

services (MFSL.BO), energy (IOC Ltd.), microfinance (SPANDANA), and exchange-traded
funds (ETFs) that track market indices. A diversified investor may find this mix attractive.
By distributing investments across a range of industries and asset classes, they try to reduce
risk.

3. High-Risk, High-Reward Investor: The portfolio includes stocks with significant positive
and negative returns. An investor with a high-risk tolerance might be willing to take
aggressive positions and seek substantial gains, recognizing that high-risk investments come
with the potential for high rewards.

4. Value Investor: Based on fundamental analysis, some stocks in this portfolio, such as IOC
Ltd., may be considered undervalued. These stocks may be purchased at a discount by value
investors, who plan to hold them in the hope that their true value will eventually be
achieved.

1.6 Formulas
● Beta = ((∑(Ri-Ri _ )(Rm-Rm)/n-1)/((Rm-Rm _ )n-1))
● Alpha = Actual Return - Expected Rate of Return
● RSI= (100-((100)/(1+(AG/AL))))

16
 ● Stochastic Oscillator = (Closing Price - Lowest Price) / (Highest Price-Lowest Price)
● SMA = A1+A2+A3+A4.............An
● EMA = ((Current Closing Price*M)+(Previous Closing Price*M))
● Assumption:
● Aggregate Gain (AG) = 13%
● Aggregate Loss (AL) = 7%
● M = ((2) / (n+1))

1.7 Portfolio outcome

BETA 1.6555
ALPHA 21.48%
SMA 5600.723212
AG 14%
AL 8%
RSI 63.63636364
M 0.1176470588
EMA 1449.803932
SO 90.68315321

1.8 Suggestions
This portfolio analysis provides key insights into investment performance, highlighting both
opportunities and risks. In order to maximize returns and minimize potential volatility, it is
important to maintain diversification, exercise caution when managing risk, and employ active
strategies. This is demonstrated by the relatively high beta of 1.6555 and the significant positive
alpha of 21.48%. Some of the suggestions for the investor with above portfolio could be:
● Diversify Across Asset Classes: Diversification across different asset classes, such as
stocks, bonds, and possibly other investment vehicles, is essential to optimize portfolio
management and minimize potential volatility given the portfolio's relatively high beta
and the risk associated with it.

17
 ● Careful Risk Management: Because of the higher beta, use stop-loss orders and other
cautious risk management techniques to limit potential losses and shield the portfolio
from large downturns.
● Active Management: The positive alpha of the portfolio offers a chance for proactive
management. Keep an eye on the portfolio and make adjustments as needed to optimize
the alpha-indicated potential returns.
● Strategic Allocation: Review and change the asset allocation on a regular basis in
accordance with shifting risk tolerance and financial goals, as well as income from
dividend-paying stocks and bonds.
● Technical Analysis: Use technical analysis tools to help you time the market more
accurately. Examples of these tools are the Exponential Moving Average (EMA), Simple
Moving Average (SMA), and Relative Strength Index (RSI).
● Stochastic Oscillator Caution: The stochastic oscillator should be interpreted with
caution, especially if it indicates that the market is overbought. This signal might point to
possible overvaluation, so it's crucial to proceed cautiously in these circumstances.

Investor 2 - Aashma Karki

Businesswoman Aashma Karki, 52 years old, takes a balanced approach to her assets. She is a
moderate investor in terms of risk, according to the risk assessment. According to her business
background and objectives, this shows that she is comfortable with moderate levels of risk and
likes a balance of stability and possible growth in his investment selections. She also likes to
invest more on stocks that are more likely to give dividends.

2.1 Portfolio
Indoco Maruti
Thanga
Axis Punjab Remed Suzuki PC Kalyan
Mayil
Date Bank Nationa ies India Jeweller Jewellers Total RI
Jewelle
Limit l Bank Limite Limite Ltd India Ltd
ry Ltd
ed Limited d d

18
 685.4 354.10 7966.3 478.338 9598.26
May-22 23 59.723877
00024 31.35 0006 50098 165 217
636.7 29.0499 362.64 8470.7 516.436 10127.1 0.05510
Jun-22 46.799999 64.759026
00012 99 9994 5 523 4555 199384
724.7 386.70 8773.5 553.848 10622.9 0.04895
Jul-22 71.300003 81.409927
99988 31.35 0012 49805 511 5825 878018
751.1 35.8499 359.45 9082.2 608.029 11015.9 0.03699
Aug-22 83.300003 95.966995
50024 98 0012 5 602 9663 895819
36.5499 327.10 8828.1 477.308 103.44999 102.24847 10608.3 -0.0370
Sep-22
733.5 99 0006 50391 502 7 4 0737 0884074
905.8 42.5999 354.29 9527.5 500.942 106.13700 11515.9 0.08555
Oct-22 78.5
49976 98 9988 99609 261 1 2883 761371
51.2999 397.45 8974.1 536.736 126.07819 11070.2 -0.0386
Nov-22 83.050003
901.5 99 0012 50391 145 4 6474 9979534
933.8 56.4500 406.85 8394.5 517.270 117.70290 10477.2 -0.0535
Dec-22 50.5
49976 01 0006 99609 081 4 2258 707303
871.6 53.5999 328.20 8895.2 487.507 113.26598 10776.7 0.02858
Jan-23 27.200001
50024 98 0012 99805 263 4 2309 58688
843.7 48.3499 359.35 8624.3 497.555 105.04023 10505.1 -0.0251
Feb-23 26.719999
99988 98 0006 49609 389 7 6523 9855607
858.4 46.7099 325.54 8292.1 513.500 102.34818 10164.0 -0.0324
Mar-23 25.34
50012 99 9988 50391 732 3 4931 7125711
52.2400 323.29 8589.5 674.368 105.28950 10628.2 0.04567
Apr-23 23.5
860 02 9988 49805 042 5 4734 058099
914.7 51.8499 350.35 9367.7 752.755 11610.2 0.09239
May-23 26.360001 146.56778
00012 98 0006 00195 859 8385 872553
987.7 327.04 9789.0 1312.44 174.73471 12672.7 0.09151
Jun-23 30.049999
99988 51.66 9988 49805 9951 1 9444 460934
61.9399 318.85 9820.7 251.70771 12664.6 -0.0006
Jul-23 1234.75 26.610001
950 99 0006 5 8 0772 4600732

19
 2
10003. 1238.05 227.60000 12849.2 0.01457
Aug-23 26.299999
974 63 316.5 79981 0049 6 4986 938051
1036. 80.1999 338.70 10610. 1404.94 13788.8 0.07312
Sep-23 30.440001 287.25
75 97 0012 59961 9951 8957 798189
Soure: Author Compilation

Interpretation: Axis Bank Limited's stock price increased from 685.40 to 1036.75 between May
22 and September 23, giving an exceptional return on investment (RI) of approximately 51.46%.
Punjab National Bank Limited experienced considerable development, with its stock price rising
from 31.35 to 80.20. On the other hand, Indoco Remedies Limited's stock price declined slightly,
from 354.10 to 338.70, resulting in a negligible negative return on investment (RI) of about
-4.35%. Maruti Suzuki India Limited experienced significant growth, with its stock price going
from 7966.35 to 10610.60, resulting in a significant RI of around 33.07%. In the stock market,
Thanga Mayil Jewellery Ltd. had an inconsistent performance from May 22 to September 23.
After experiencing highs and lows, the stock price found its time at 478.34 and ended up at
1404.95. This resulted in a total return on investment (RI) of around 73.13%, showing the stock's
tolerance to market fluctuations. On the other hand, PC Jeweller Ltd. showed a more irregular
trajectory, with a start at 23 and a finish at 30.44, resulting in an RI of about 30.44%. Kalyan
Jewellers India Ltd had a strong upward trend, moving from 59.72 to 287.25.

2.2 Portfolio Return

RI-RI(BAR RM-RM _ * RM-RM
RM RI RM-RM (BAR) ) RI-RI _ (BAR)^2
0.08732434 0.05510199
0.07484894 0.03104579 0.00232374 0.00560236
531 384
0.03502984 0.04895878
0.03502984 0.04895878 0.00171502 0.00122709
168 018
-0.03744241 0.03699895
-0.03744242 0.03699896 -0.00138533 0.00140193
849 819

20
 0.05369315 -0.03700884
0.05369316 -0.03700884 -0.00198712 0.00288296
774 074
0.04142472 0.08555761
0.04142472 0.08555761 0.00354420 0.00171601
448 371
-0.03481376 -0.03869979
-0.03481377 -0.03869980 0.00134729 0.00121200
782 534
-0.02447627 -0.05357073
-0.02447628 -0.05357073 0.00131121 0.00059909
882 03
-0.02028072 0.02858586
-0.02028072 0.02858587 -0.00057974 0.00041131
257 88
0.00322474 -0.02519855
0.00322474 -0.02519856 -0.00008126 0.00001040
2531 607
0.04062558 -0.03247125
0.04062559 -0.03247126 -0.00131916 0.00165044
505 711
0.02598396 0.04567058
0.02598397 0.04567058 0.00118670 0.00067517
85 099
0.03532082 0.09239872
0.03532083 0.09239873 0.00326360 0.00124756
917 553
0.02943084 0.09151460
0.02943085 0.09151461 0.00269335 0.00086617
608 934
-0.02531158 -0.00064600
-0.02531158 -0.00064601 0.00001635 0.00064068
462 7322
0.01997008 0.01457938
0.01997008 0.01457938 0.00029115 0.00039880
302 051
-0.03009683 0.07312798
-0.03009684 0.07312798 -0.00220092 0.00090582
921 189
19.96% 38.49% 0.187131105 0.360843099 0.010139081 0.021447785
Soure: Author Compilation

2.3 Returns Analysis

21
Returns:
RM (Market Returns) ranged from -0.03744 to 0.08732.
RI (Investor's Returns) ranged from -0.05357 to 0.09239.
The portfolio generated a total return of 38.49% over the analyzed period.

Risk Metrics:
Beta (Sensitivity to Market): The beta value was approximately 0.9546 which indicates slightly
lower volatility and risk compared to the market.
Alpha (Excess Return): The alpha was approximately 18.53%, suggesting that the portfolio has
overperformed the expectation as compared to the risk involved.

Technical Analysis:
RM-RM (BAR): The difference between RM and its bar value ranged from -0.03744 to
0.07484.
RI-RI(BAR): The difference between RI and its bar value ranged from -0.05357 to 0.09239.

Risk-Adjusted Performance Metrics:

RM-RM _ * RI-RI _: The product of (RM-RM (BAR) and RI-RI(BAR)) ranged from -
0.0022 to 0.00354.
RM-RM (BAR)^2: The square of RM-RM (BAR) ranged from 0.00080104 to 0.00560236.

2.4 Investor’s Approach

1. Moderate Risk Investor: The stocks in this portfolio are a mixture of companies from
different industries, such as jewelry, banks, healthcare, and autos. It appears to be slightly
less volatile than the market based on its beta of 0.9546. This portfolio may be attractive to
an investor who can take moderate risks. They could focus on industry diversification while
attempting to maintain a balance between risk and return.

2. Income-Focused Investor: This portfolio includes stocks that could generate dividends.
Those dividend-paying equities could be of interest to an investor who prioritizes regular

22
 income. Companies with a track record of consistent dividend payments could be their main
focus.

3. Alpha-Seeking Investor: The portfolio has surpassed its predicted return, according to the
positive alpha of 18.53%, which shows that the stock selection or management was skillful.
This portfolio might appeal to an alpha-seeking investor who wants to profit from its ability
to outperform the market.

4. Risk-Adjusted Investor: Considering the alpha and beta, a risk-adjusted investor could
aim to optimize their risk-return profile. To match their own risk tolerance and financial
objectives, they may assess the portfolio's risk-adjusted performance and diversity.

2.5 Portfolio Outcome

BETA 0.9546
Alpha 18.53%
SMA 11918.50603
RSI 64.70588235
AG 11%
AL 6%
M 0.1176470588
EMA 3133.898756
SO 100

2.6 Suggestions
With a positive alpha of 18.53%, this portfolio analysis emphasizes the value of diversification,
active management, and risk mitigation. Along with the need for a long-term perspective and
expert guidance to align the strategy with financial goals, flexibility in asset allocation, technical
analysis tools, and income generation strategies are highlighted.
Some of the suggestions for an investor with above portfolio are:

23
 ● Assist Allocation Flexibility: Consider adjusting the percentages of AG (11%) and AL
(6%) in your portfolio to align with your risk tolerance and financial goals.
● Diversification for RIsk-REturn Balance: Aim for a beta just below 1 and diversify
across asset classes to potentially maintain returns while managing risk. The importance
of active management is highlighted by the notable 18.53% positive alpha.
● Active Management and Routine Reviews: Maintain a regular check and balance on
your investment portfolio, looking for areas where you can optimize it while keeping an
eye out for future market volatility. Use risk management strategies to protect yourself
during market downturns, such as stop-loss orders.
● Long-Term Perspective: In your investment strategy, stick to a long-term perspective
and pay attention to market signals, particularly an overbought signal from the stochastic
oscillator at 100.
● Income Generation: Explore income generation strategies through dividend stocks or
bonds, aligning your investments with your income objectives.

Investor 3 - Anish Timalsina

Anish TImalsia, a 22-year-old student, has already initiated wise investing decisions. Having
made investments in prominent companies, he takes a thoughtful strategy. He focuses on
analyzing the stocks with technical analysis tools to properly time his entry in the stock market.
As a young investor he also likes to invest on git funds which can provide him with fixed-income
for both capital preservation and income generation.

3.1 Portfolio
Nippon
Axis Kotak
India SBI
Small Gilt
Adani Small Magnum
Cap KDDL Investm
Date Enter Cap Gilt Fund Total RI
Fund Ltd ent
prises Fund Direct-Gr
Direct-G Direct-G
Limit Direct- owth
rowth rowth
ed Cipla Growth
May-22 2167. 993.8 62.33000 85.2665 662.8778 77.615898 84.8020 4134.29

24
 55004 49976 2 02 08 02 2237
9
2190.
66.94999 93.1519 794.3964 85.7353 4231.77 0.02357
Jun-22 89990 915.2 85.440903
7 01 84 97 4596 897154
2 00012
2569.
70.04000 98.0566 930.7012 86.8809 4821.06 0.13925
Jul-22 19995 978.1 88.034698
1 02 33 97 3506 33786
1 50024
3194. 1038.
99.2356 935.7864 5514.49 0.14383
Aug-22 35009 94995 70.75 88.106003 87.3162
03 99 4354 35851
8 1
1115.
71.02999 101.097 997.7069 87.6061 5917.22 0.07303
Sep-22 3455. 19995 88.836601
9 801 09 02 7363 172025
75 1
3347. 1166. -0.0093
72.44999 103.930 994.8651 88.4714 5861.73
Oct-22 44995 19995 88.366402 7839474
7 298 73 97 3269
1 1 4
3917. 1140.
71.66000 102.123 1047.163 88.7390 6453.44 0.10094
Nov-22 89990 30004 85.562202
4 1 574 98 7929 53404
2 9
3858. 1075.
71.12000 100.641 1038.339 89.0503 6319.39 -0.0207
Dec-22 35009 05004 86.840202
3 602 111 01 1366 7285886
8 9
2973.
69.87999 99.6773 1067.903 89.3797 5402.80 -0.1450
Jan-23 89990 85.069298
7 99 32 99 9715 427103
2 1017
1363.
69.52999 100.058 1014.807 90.5642 3630.89 -0.3279
Feb-23 84997 906.0 86.034203
9 701 373 01 4441 618138
6 49988
1750.
72.59999 105.492 1116.461 91.6011 4126.15 0.13640
Mar-23 44995 900.6 88.896004
8 897 792 96 1862 09417
1 50024
1924.
77.12999 112.620 1100.976 92.5595 4308.18 0.04411
Apr-23 94995 907.7 92.245796
7 598 929 02 2785 638958
1 00012
2493.
81.27999 120.167 1365.768 5203.95 0.20792
May-23 35009 954.2 96.467697 92.7229
9 999 799 7504 40282
8 00012
2388. 1015. 84.04000 127.654 1576.113 5384.01 0.03459
Jun-23 99.514099 93.1884
05004 45001 1 9 77 1231 938458

25
 9 2
2492. 1177.
86.98999 133.782 1893.204 101.26170 5978.80 0.11047
Jul-23 19995 44995 93.917
8 501 712 3 5816 42467
1 1
1257.
87.72000 135.518 2037.014 94.1281 6132.85 0.02576
Aug-23 2419. 19995 102.027
1 799 526 97 8474 645951
25 1
2413. 1186.
87.11000 133.299 2177.899 93.9985 6190.47 0.00939
Sep-23 89990 80004 97.467102
1 393 902 96 4945 4717201
2 9
Soure: Author Compilation
Interpretation
The above portfolio, consisting of various stocks and mutual funds, exhibited a range of
performances from May 2022 to September 2023. The portfolio's investments showed different
levels of gains and losses. Adani Enterprises Limited and Cipla both exhibited volatility over the
course of the analysis period, with Cipla's stock price showing greater stability. Axis Small Cap
Fund Direct-Growth and Nippon India Small Cap Fund Direct-Growth were two mutual funds
that showed growth potential, and KDDL Ltd. was one individual stock that showed consistent
gains. The inclusion of Kotak Gilt Investment and SBI Magnum Gilt Fund Direct-Growth
indicated a preference for fixed-income investments for stability and income production. The
portfolio was a diversified investment option because it included a variety of strategies, including
growth and income, and it had the potential to generate both income and capital appreciation.

3.2 Portfolio Return

RM-RM _
RM-RM RM-RM
RM RI (BAR) RI-RI(BAR) * RI-RI _ (BAR)^2

0.087324345 0.023578971 0.074848938 -0.00079012336 0.000111434204

-0.01055624006
31 54 3 11 2
0.035029841 0.139253378 0.035029841
0.1392533786 0.004878023806 0.01939150345
68 6 68
-0.03744241 0.143833585 -0.03744241 0.1438335851 -0.00538547728 0.0206881002

26
 849 1 849 6
0.053693157 0.073031720 0.053693157
0.07303172025 0.003921303676 0.005333632163
74 25 74
0.041424724 -0.00937839 0.041424724 -0.00937839474 -0.00038849741
0.000087954
48 4744 48 4 84
-0.03481376 0.100945340 -0.03481376 -0.00351428764
0.1009453404 0.01018996174
782 4 782 2
-0.02447627 -0.02077285 -0.02447627 0.000508442285 0.000431511665
-0.02077285886
882 886 882 3 3
-0.02028072 -0.14504271 -0.02028072
-0.1450427103 0.002941570967 0.0210373878
257 03 257
0.003224742 -0.32796181 0.003224742
-0.3279618138 -0.00105759241 0.1075589513
531 38 531
0.040625585 0.136400941 0.040625585
0.1364009417 0.005541368058 0.0186052169
05 7 05
0.025983968 0.044116389 0.025983968
0.04411638958 0.001146318877 0.001946255829
5 58 5
0.035320829 0.207924028 0.035320829
0.2079240282 0.007344049082 0.04323240151
17 2 17
0.029430846 0.034599384 0.029430846
0.03459938458 0.001018289162 0.001197117413
08 58 08
-0.02531158 0.110474246 -0.02531158 -0.00279627824
0.1104742467 0.01220455919
462 7 462 4
0.019970083 0.025766459 0.019970083 0.000514558335 0.000663910435
0.02576645951
02 51 02 6 9
-0.03009683 0.009394717 -0.03009683 0.00939471720 -0.00028275129
0.00008826
921 201 921 1 31
19.96% 54.62% 0.187131105 0.512028174 0.01359891659 0.2627681588
Soure: Author Compilation

27
3.3 Return Analysis
Returns:
RM (Market Returns) ranged from -0.03744 to 0.08732.
RI (Investor's Returns) ranged from -0.32796 to 0.20792.
The portfolio generated a total return of 54.62% over the analyzed period.

Risk Metrics:
Beta (Sensitivity to Market): The beta value was approximately 1.0236 which indicates slightly
higher volatility and risk compared to the market.
Alpha (Excess Return): The alpha was approximately 34.66%, suggesting that the portfolio has
overperformed the expectation as compared to the risk involved.

Technical Analysis:
RM-RM (BAR): The difference between RM and its bar value ranged from -0.03744 to
0.07484.
RI-RI(BAR): The difference between RI and its bar value ranged from -0.32796 to 0.20792.

Risk-Adjusted Performance Metrics:

RM-RM _ * RI-RI _: The product of (RM-RM (BAR) and RI-RI(BAR)) ranged from -
0.00538 to 0.00734.
RM-RM (BAR)^2: The square of RM-RM (BAR) ranged from 0.00087 to 0.10755.

3.4 Investor’s Approach

1. Diversification: The portfolio consists of a mix of mutual funds (Axis Small Cap Fund,
Nippon India Small Cap Fund, SBI Magnum Gilt Fund, Kotak Gilt Investment) and
individual stocks (Adani Enterprises, Cipla, etc.). This points to a diversified strategy that
probably aims to distribute risk among several asset classes.

2. Fixed Income Exposure: The presence of gilt funds (Kotak Gilt Investment and SBI
Magnum Gilt Fund) indicates a potential interest in fixed-income investments for both

28
 capital preservation and income generation. Gilt funds are known for their stability and
comparatively low risk.

3. Income and growth: The investor's strategy combines growth and income, as shown by
the inclusion of mutual funds and individual stocks. While mutual funds, particularly gilt
funds, can offer stability and income, stocks could provide growth potential.

4. Market Timing: The investor's approach seems to involve effective market timing, as
the portfolio consistently capitalizes on upward trends in the market, especially in recent
months.

3.5 Portfolio Outcome

BETA 1.0236
ALPHA 34.66%
SMA 4513.680141
AG 13%
AL 8%
RSI 61.9047619
M 0.1176470588
EMA 1209.483523
SO 83.16839705

3.6 Suggestions
Taking consideration of the components of the portfolio, an investor should implement a plan
that is based on proactive management, diversification, and cautious risk reduction. Stability
depends on diversifying across asset classes, since a beta of 1.0236 indicates moderate risk.
Proactive management is necessary to optimize the significant alpha of 34.66%, in addition to
strong risk management strategies such as stop-loss orders to protect against significant declines.
Some of the suggestions for investor with above portfolio are:

29
 ● Leveraging Positive Alpha: The potential for consistent outperformance is highlighted
by the substantial alpha of 34.66%. To take full advantage of this advantage, proactive
management and careful observation are necessary.
● Risk Management with Stop-Loss Orders: Even with the close to average beta, it is
wise to use strong risk control strategies, like stop-loss orders, to protect the portfolio
from significant losses.
● Allocation Percentage Alignment: Make sure that the allocation percentages, such as
AL (8%), and AG (13%) match your particular financial goals and risk tolerance. The
key is to be flexible in modifying these allocations.
● Balancing Income and Growth: Create a balance between assets with room to grow and
those that will generate income while keeping an eye on the long term when making
investments. This strategy aids in coordinating your portfolio to meet both immediate
needs and long-term objectives.
● Active Management and DIversification: An active management strategy is essential
given the portfolio's beta, which is close to 1.0236 and indicates a fairly balanced level of
risk. To distribute risk and improve stability, diversification across a range of industries
and asset classes is essential.

Conclusion
We have thoroughly examined the performance and risk-return profiles of three different
investment portfolios over a given time frame. The portfolios, which show various asset
allocations and investment strategies, have given us important insights into the world of financial
decision-making. Every portfolio showcased its distinct features, showing the potential for
growth as well as the risks that come with making different investment decisions. We were able
to understand their performance dynamics better by examining variables like total return, beta,
alpha, average monthly return, and monthly return variability, among other performance
indicators.
The analysis of the first portfolio spanning from May 2022 to September 2023 shows a mixture
of positive and negative returns, with notable gains in some months and occasional losses in
others. The portfolio has, on average, outperformed expectations given the associated risk,

30
according to the substantial positive alpha of 21.48%, while the high beta of 1.6555 suggests a
relatively high level of volatility. Diversification across asset classes, cautious risk management
techniques, and ongoing portfolio adjustments are essential for optimizing returns and
controlling risk. Making better investment decisions can also be aided by using technical analysis
tools like the Relative Strength Index (RSI), Simple Moving Average (SMA), and Exponential
Moving Average (EMA). Even though the portfolio has seen ups and downs, it indicates the
possibility of positive returns and presents chances for investors who are growth-oriented,
diversified, or value-seeking, so long as they continue to exercise caution when making
investments.
The second portfolio we analyzed was a diverse one which consisted of gold bonds and stocks as
well. This portfolio’s performance was strongest in May and June 2023, with occasional
fluctuations in other months. The beta of 0.9546 indicates that the portfolio is somewhat less
volatile than the overall market, according to the risk-return analysis. Additionally, considering
the associated risk, the portfolio has consistently outperformed expectations, as indicated by the
substantial positive alpha of 18.53%. Diverse investors find the portfolio attractive due to its
flexibility in asset allocation, exposure to a variety of industries, and potential for income
generation. These include people who want to optimize their risk-return profile, prefer
income-producing investments, want to take on a moderate amount of risk, or hope to profit from
alpha. In order to help investors navigate the complexities of the financial markets and
accomplish their financial goals, this analysis highlights the significance of active management,
flexible asset allocation, and a long-term perspective.
The third portfolio we analyzed consisted of different mutual funds along with stocks. This
portfolio combined diversification, fixed-income exposure and a strategic blend of income and
growth assets. The portfolio's performance over the studied period shows its ability to take
advantage of market opportunities, with a total return of 54.62%. Although the beta of 1.0236
indicates a somewhat elevated degree of risk in comparison to the market, the noteworthy alpha
of roughly 34.66% signifies a persistent outperformance concerning the corresponding risk. The
portfolio, which includes both individual stocks and mutual funds, is designed to appeal to
investors who value growth as well as stability. To fully realize the potential of the portfolio,
prudent allocation adjustments, effective management, and risk mitigation techniques like
stop-loss orders are necessary. In the ever-changing world of financial markets, finding a

31
balanced approach to building wealth requires both diversification and preserving the balance
between income and growth.
Each of the three different portfolios analyzed offers a different perspective on building wealth
and provides information about the ever-changing financial markets. These portfolios highlight
the significance of customized investment strategies with a wide range of assets, such as
individual stocks and mutual funds, and different levels of risk and return. All three of the
portfolios have demonstrated the ability to generate positive returns, with notable alphas and
varied betas, despite their disparate approaches.

References:
➢ Schoenmaker, D., & Schramade, W. (2023). Risk-Return analysis. In Springer texts in

business and economics (pp. 325–366). https://doi.org/10.1007/978-3-031-35009-2_12

➢ Team, C. (2023, January 20). Variability. Corporate Finance Institute.

https://corporatefinanceinstitute.com/resources/data-science/variability/

➢ What is Portfolio Return? (n.d.). https://www.tutorialspoint.com/what-is-portfolio-return

➢ Why Investing is Important | Wells Fargo Advisors. (n.d.).

https://www.wellsfargo.com/goals-investing/why-invest/#:~:text=Investing%20is%20an

%20effective%20way,and%20the%20risk%2Dreturn%20tradeoff.

➢ Finserv, B. (2023, March 15). Complete guide to investing. www.bajajfinserv.in.

https://www.bajajfinserv.in/investments/complete-guide-investing

32
33