Investment Portfolio for Investors and Executives Analysis - Essay Example

Introduction: The major aim of this appraisal report is to elaborate and explain investment portfolio for investors and executives by examining six stocks conditions in five different and distinct parts of ASX300 from 4th April 2010to 7th February 2012. This paper will show the uncertainties of these stocks and also benefits of them. When one find that the risk and returns of a stock are understandable and can be estimated on the grounds of some broad parameter, the future behavior of these stocks can be predicted with moderate accuracy (Estrada, 2011). The companies chosen to be represented in a portfolio are as follows:ANZ, BHP, BOQ, HVN, TLS and WOW. Analysis: Moments of distributions Asset Type Symbol Volatility Expected Excess Growth Rate Skewness Kurtosis Excess Asset ANZ.AX 23.59% -5.54% -0.18 3.46 Asset BHP.AX 24.21% -9.58% -0.08 0.91 Asset BOQ.AX 27.08% -24.81% -0.07 0.54 Asset HVN.AX 27.02% -34.38% -0.02 1.69 Asset TLS.AX 19.52% 1.48% -1.04 9.31 Asset WOW.AX 15.13% -10.19% -0.18 4.26 Factor ASX300 17.49% -10.41% -0.15 0.81 Volatility From the data, volatility is a measure of variation in the average trajectory leading to a risk. BOQ stocks have the highest variation at 27.08%. This implies that there is an increase in the interests hence the frequency of financial data is high leading to high volatility. HVN stocks have high volatility, as well. There is a decrease in volatility where BHP and ANZ stocks are low indicating a returns pattern which is in a stochastic process. As a result of nonparametric analysis, the pattern in the volatility changes because of financial returns making the volatility of WOW and ASX300 low (Greer, 2008). Excess growth rate The rate of returns of TLS stock is high because the risk is considerable; ANZ and BHP follow as there expectation of growth is low due to high risk. BOQ and HVN stocks have a low growth rate expectation because they have a high risk unlike the rest of the stocks (Lagerquist, 2009). Skewness and kurtosis excess All the stocks have a negative skewness where TLS has the most negative skewness. This is because of the risk while HVN has a negative skewness because the risk is low. TLS stocks have a high measure of kurtosis, due to high risk expectation while BOQ has a low measure of kurtosis because of the risk and growth rate being low. Results of portfolio Below is the portfolio’s structure Symbol Start Date End Date Number of Observations Mu Volatility HVN.AX 5/01/2010 9/02/2012 531 -0.26 0.27 BOQ.AX 5/01/2010 9/02/2012 531 -0.17 0.27 BHP.AX 5/01/2010 9/02/2012 531 -0.02 0.24 ANZ.AX 5/01/2010 9/02/2012 531 0.01 0.24 TLS.AX 5/01/2010 9/02/2012 531 0.08 0.20 WOW.AX 5/01/2010 9/02/2012 531 -0.05 0.15 ASX300 5/01/2010 9/02/2012 531 -0.05 0.17 HVN Company shows a negative Mu while the volatility is positive, this applies for BOQ, BHP and WOW. There is a positive Mu for ANZ and TLS as well as the volatility. The results provide grounds for future decision making as well as the future behavior of the stock. The observations are constant at 531 from 2010 to 2012. Symbol Instant. Alpha Betas ASX300 HVN.AX -0.23 0.84 BOQ.AX -0.12 1.08 BHP.AX 0.04 1.23 ANZ.AX 0.07 1.14 TLS.AX 0.07 0.43 WOW.AX -0.05 0.46 ASX300 1.00 Analysis of alpha and beta Alpha is the measure of the residual risk, where in the data BHP, ANZ and TLS stocks have a high residual risk while HVN, BOQ and WOW stocks have a low residual risk. Beta is how sensitive the stock returns are to the outcome on the index of the market. The sensitivity of HVN stock is between zero and one implying that there is an investment having low volatility. BOQ, HBP and ANZ stocks are above one implying that the volatility of the stock is more than index. ASX300 stocks have a beta equal to one implying that there is a matching index (Prime, 2007). On the basis of detailed examination concerning each stock situation in ASX300, the security from each different section has makes contributions that vary to the investment income. From the smart folio, the six assets shown in the portfolio attain almost 4% of excess returns which include banking deposit ratio for the past 2-years. In the future, the assets’ potential growth rate could be accomplished by 1.27%, and only 1.93% of the value at risk taken by this portfolio. In terms of each equal weight stock, TLS from the telecommunication and service provider come first by contributing the largest followed by ANZ and BHP. Then WOW and BOQ follows. WOW, BOQ, ANZ and BHP made low returns and lower risk. ASX300 does not perform as favorable as the rest six stocks. Around 20% 0f the value at risk are a deduction, and less than -5% of returns are a contribution by each of the six companies which is similar to ASX300. In Markowitz’s theory (Bodie, 2007), investment diversification can lessen potential risk, so this portfolio can be able to make satisfactory balance by combining aggressive stocks and defensive assets (Fisher, 2009). Asset Type Symbol Weights Volatility Excess Mu Expected Excess Growth Rate VaR CVaR Portfolio 　 18.89% 3.05% 1.27% 1.93% 2.41% Numeraire Cash 0.00 　 　 　 　 　 Asset ANZ.AX 0.05 23.59% -2.76% -5.54% 2.43% 3.03% Asset BHP.AX 0.00 24.21% -6.65% -9.58% 2.51% 3.13% Asset BOQ.AX 0.00 27.08% -21.14% -24.81% 2.86% 3.55% Asset HVN.AX 0.00 27.02% -30.73% -34.38% 2.89% 3.57% Asset TLS.AX 0.95 19.52% 3.38% 1.48% 1.99% 2.49% Asset WOW.AX 0.00 15.13% -9.04% -10.19% 1.59% 1.98% Factor ASX300 0.00 17.49% -8.88% -10.41% 1.83% 2.28% So as to be able to maximize the total excess returns, one can optimize the portfolio and assign each asset a weight. According to the three return and risk relationships which involves risk opposed, risk impartial and risk seeker, different and capable frontiers can be produced by regulating the factor of relative risk such as indicating risk neutral, demonstrating risk averse or by representing risk seekers. As a result, the factors representing risk seekers and indicating neutral risk are rather similar, which displayed that only TLS should be invested and by this that TLS was the best company in the optimizing portfolio. Under these circumstances, the total excess returns reached 5%, and the value at risk is controlled at less than 20%. The correlation matrix below shows the price movement of the individual share that is a relation to the ASX300 market movement. In the portfolio, BHP has got the highest position correlation 0.866 while WOW has got the lowest correlation of 0.527. The correlation between TLS and HVN is low which means that some variables are increasing as others are decreasing (Estrada, 2011). Efficient frontiers The Mu increases as the volatility increases. The graph indicates the ranks of the stock where TLS is above 0%, while the rest are below. This implies there is a high stock risk due to the increase in the MU. The costs, benefits, timing, risk and uncertainties of these stocks Uncertainties of six stocks are inclusive due to the consideration of the benefits and the cost. From the data, the benefits and costs of TLS are higher than those of ANZ. The corporate profit is low if there are many mistakes and fluctuations in the cost of commodities (Lagerquist, 2009). Recommendation: Indications from the study are that there are several methods to do research in stocks and evaluation of the portfolio from the financial analysis dimension. Different returns and risk levels from all the companies’ leads to a varied level of the portfolio performance. Therefore, reasonable assets allocation is of significance to mutual fund establishment. Good understanding concerning the stock analysis technique and also diversification of the total asserts can help in avoiding uncertainty risk and improvement of the returns. By this analysis, it is advisory that the movement of the companies is monitored (Bodie, 2007). Conclusion on analysis moment part Out of all 6 stocks, ANZ, BHP, BOQ, HVN, TLS stocks can undergo invest because their volatility is relatively high. While WOW cannot because it volatility is low. Investors who are looking forward to invest in any of the above six stocks, they should consider investing in the company which have a high volatility and not those with a low volatility rate. In the six stocks, ANZ, BHP, BOQ, HVN, TLS stocks are expected to have the highest returns for a defined level of risk or the expectations of the returns. References Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Bodie, Z., M. Ariff, R. da Silva Rosa, A. Kane & A. Marcus, (2007), Investment, Australian Edition, McGraw-Hill. Brussee, W. (2009).Getting started in investment analysis. Hoboken, N.J: Wiley. Estrada, J. (2011). The Three Factor Model: A Practitioners Guide. Journal of Applied Corporate Finance, 76-85. Fisher, J. D., & Martin, R. S. (2009).Investment analysis for appraisers. Chicago, Ill: Real Estate Educa Greer, G. E., & Kolbe, P. T. (2008).Investment analysis for real estate decisions. Chicago, IL: Dearborn Real Estate Education. Lagerquist, W. E. (2009). Investment analysis: Fundamentals in the analysis of investment securities. New York: The Macmillan company. Prime, J. H. (2007).Investment analysis. Englewood Cliffs, NJ: Prentice-Hall. Read More