FINAL PROJECT WORK PORTFOLIO MANAGEMENT (2) hhh (1) (2) (5) (1) (1).doc
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This document presents a study on portfolio management at Muthoot Finance, emphasizing the importance of diversifying investments to manage risks and achieve optimal returns. It outlines the steps in effective portfolio management, including risk assessment, asset allocation, and financial planning techniques, supported by various case studies. The study also explores modern methodologies and theories for evaluating and enhancing portfolio performance through strategic financial decision-making.
FINAL PROJECT WORK PORTFOLIO MANAGEMENT (2) hhh (1) (2) (5) (1) (1).doc
- 1. A STUDY ON PORTFOLIO MANAGEMENT WITH RELATIONSHIP MANAGER TO MUTHOOT FINANCE LTD. SUBMITTED BY STUDENT NAME : KASA . NARASIMHA RAO ROLL NO : 2221BM010086 SUPERVISOR : MRS. DR. VUNNAVA SANDHYA
- 2. 2 A STUDY ON “PORTFOLIO MANAGEMENT” WITH REFERENCE TO AT MUTHOOT FINANCE
- 3. 3 ABSTRACT Portfolio management can be defined and utilized in various ways, as the basic meaning of the word implies "a combination of various things kept intact." In the context of investment in the securities segment, portfolio management is a crucial aspect for investors. It allows them to manage the risk of investing in securities, thereby enabling them to achieve good returns from a diversified set of securities rather than putting all their money into one basket. Today, investors are very cautious in selecting the right portfolio of securities to mitigate risks from market and economic forces. This topic is significant because effective portfolio management involves following certain steps to choose the right portfolio, ensuring good and effective returns while managing risks. This discussion explores how to choose a particular portfolio by considering the individual returns of all securities and then determining the overall portfolio return. It also covers various techniques for evaluating the portfolio amidst uncertainties, helping investors select the optimal one. The purpose of this exploration is to understand how to manage portfolios effectively to achieve good returns and to educate investors on how to select the securities for their portfolios. By studying different case studies, the project aims to provide a thorough understanding of portfolio management for both the investor and myself.
- 4. 4 INDEX CH. NO. CONTENTS PAGE NO. CHAPTER -1 1.1 Introduction 1.2 Objectives of the study 1.3 Need and Scope of the Study CHAPTER -2 2.1 REVIEW OF LITERATURE 2.2 THEORETICAL FRAME WORK CHAPTER-3 1 Research Methodology 2 Data Collection 3 Primary data 4 Secondary Data 5 Research Design 6 Research Gap 7 Research question CHAPTER-4 4.1 DATA ANALYSIS & INTERRETATION OF THE STUDY CHAPTER -5 FINDINGS, SUGGESTIONS AND CONCLUSION BIBLIOGRAPHY
- 6. 6 INTRODUCTION Financial Planning gives guidance and intending to your money related choices. Its permit you to see how each money related choice you make influences different territories of your funds. For illustrations, purchasing a specific venture item may help you pay off your home loan quicker or it may postpone your retirement altogether. Effective portfolio management is a strategic approach to investing that aims to balance risk and reward by diversifying investments. By evaluating each financial decision as part of a whole, investors can consider both the short-term and long-term impacts on their life goals. This holistic approach allows for greater adaptability to life changes and ensures that financial goals remain on track. Improves Risk Management: Risk management is a critical aspect of financial planning. By taking adequate life and health cover, investors can determine the precise amount of insurance needed. This approach ensures that they do not overpay for unnecessary coverage and do not end up with insufficient protection. This balance is crucial for managing personal finances efficiently and reducing unnecessary expenses. Enhances Portfolio Return on Investment (ROI): Financial planning encompasses various elements such as risk management, investment planning, goal setting, liquidity management, and liability management. An integrated investment plan that considers goals, available liquidity, and risk appetite can significantly improve the portfolio's ROI. This comprehensive approach ensures that investments are aligned with the investor's overall financial strategy. Utilizes Metrics for Money Management: Financial planning involves a systematic approach to managing money. By setting specific milestones and measuring achievements, investors can manage their finances more effectively. This scientific approach to money management increases efficiency and helps in achieving financial goals more reliably. Identifies Strengths and Weaknesses: Financial planning brings order to personal finances by identifying areas that are performing well and those that need improvement. For instance, an investor might discover that they are underinsured or holding poorly performing investments. Identifying these issues allows for corrective measures to be taken, optimizing the financial plan. Reduces Personal Finance Costs: Effective financial planning can lead to significant savings by eliminating high-cost financial products. For example, investors might replace expensive ULIP policies or high-charge investments with more cost-effective options. This reduction in costs can improve overall financial health. Promotes Discipline in Money Management: Financial planning instills discipline in managing finances. Behavioral changes often accompany systematic financial planning. For example, systematic investment plans (SIPs) help curtail unnecessary expenses by diverting funds towards investments. Additionally, financial planning makes investors aware of their lifestyle expenses, enabling them to adjust spending to stay within their means. Optimizes Asset Allocation: Asset allocation is a crucial element of managing money. Financial planning helps strike a balance between managing risk and returns by selecting the right mix of assets. This tailored approach ensures that the portfolio aligns with the investor's risk tolerance and return expectations.
- 7. 7 Provides Future Visibility: While it is important to live in the present, financial planning emphasizes the importance of future financial security. By planning for the next 15-20 years, investors can gain visibility into their financial future, ensuring comfort during retirement and preparedness for emergencies. This forward-thinking approach provides peace of mind and helps address any potential gaps in the financial plan. Facilitates Estate Distribution: Estate planning, including will writing, is an integral part of financial planning. Proper financial planning ensures that estate distribution is handled smoothly, minimizing disputes and ensuring that assets are allocated according to the investor's wishes. Adopts a Professional Approach: A professional approach to financial planning involves putting together a comprehensive plan and tracking its progress. Financial advisors can help implement best practices, bringing greater order and efficiency to money management practices. When considering investments in securities, investors face the challenge of choosing from a wide array of options. Their choices depend on the risk and return characteristics of individual securities. Investors aim to select the most desirable securities and allocate their funds accordingly. This involves deciding which securities to hold and how much to invest in each. The investor faces an infinite number of possible portfolios, each with different risk and return characteristics. The goal is to choose the optimal portfolio that balances risk and return. As the economy and financial environment evolve, the risk and return characteristics of individual securities and portfolios change. This necessitates periodic reviews and revisions of investment portfolios. Investors expect to achieve good returns consistent with the level of risk they are willing to bear. Measuring the returns realized from the portfolio and evaluating its performance is crucial. Rational investment activity involves creating an investment portfolio. Portfolio management encompasses all the processes involved in creating and maintaining an investment portfolio. It includes security analysis, portfolio analysis, portfolio selection, portfolio revision, and portfolio evaluation. Portfolio management employs analytical techniques and conceptual theories to allocate funds rationally. It is a complex process aimed at making investment activity more rewarding and less risky. Before designing a portfolio, it is essential to understand the investor's intentions and expected returns. This information helps adjust the amount of risk accordingly. For portfolio designers, knowing the investor's risk tolerance is crucial. Investors willing to take more risk typically expect higher returns. This relationship between risk and return is illustrated below:
- 8. 8 R1 E Ex xp pe ec ct te ed d R Re et tu ur rn ns s R2 Risk less Investment M1 M2 Risk From the above figure we can see that when the investor is ready to take risk of M1, he is likely to get expected return of R1, and if the investor is taking the risk of M2, he will be getting more returns i.e. R2. So we can conclude that risk and returns are directly related with each other. As one increases the other will also increase in same of different proportion and same if one decreases the other will also decrease. From the above discussion we can conclude that the investors can be of the following three types:Investors willing to take minimum risk and at the same time are also expecting minimum returns. 1. Investors willing to take moderate risk and at the same time are also expecting moderate returns. 2. Investors willing to take maximum risk and at the same time are also expecting maximum returns. Your age will help you determine what a good mix is / portfolio is
- 9. 9 Age Portfolio below 30 80% in stocks or mutual funds 10% in cash 10% in fixed income 30 TO 40 70% in stocks or mutual funds 10% in cash 20% in fixed income 40 to 50 60% in stocks or mutual funds 10% in cash 30% in fixed income 50 to 60 50% in stocks or mutual funds 10% in cash 40% in fixed income above 60 40% in stocks or mutual funds 10% in cash 50% in fixed income These are not rigid allocations but rather guidelines to help you think about structuring your portfolio. Your risk profile will determine whether you have more equities or fixed income based on whether you lean towards an aggressive or conservative approach. Nonetheless, it's crucial to include some equities or equity funds in your portfolio, regardless of your age. In the event of rising inflation, equities will help protect your investments from its adverse effects, unlike fixed income. Moreover, your fixed income investments should be diversified. Whether you buy bonds and debentures directly or invest in fixed deposits (FDs), ensure you have at least five different maturities to spread out the interest rate risk. Diversification in equities and bonds goes beyond merely holding multiple positions. Each position should be evaluated based on how it complements the existing stocks
- 10. 10 or bonds in your portfolio and how it might be impacted by various factors like rising interest rates or falling fuel prices. Think of your portfolio as a puzzle, where you add pieces one at a time, each distinct from the others but ultimately forming a cohesive and balanced whole once complete. This methodical approach ensures that your portfolio is well-rounded and resilient to different market conditions.
- 11. 11 OBJECTIVE OF THE STUDY To study the investment pattern and its related risk and returns. To find the optimal portfolio, which gave optimal return at a minimize risk to the investor. To see whether the portfolio is yielding a satisfactory and constant return to the investor. To see whether the portfolio risk is less than the individual risk on whose basis portfolios are constituted. To comprehend the conceptual determinants of portfolio by applying various approaches to portfolio. To understand, analyze and select the best portfolio.
- 12. 12 Need for the Study Markowitz Model Analysis: This study explores the Markowitz model, focusing on calculating correlations between different securities to determine the optimal percentage of funds to invest in various companies within the portfolio. Risk Assessment and Allocation: It includes calculating the individual standard deviation of securities and concludes with determining the weights of each security in the portfolio. These percentages aid in allocating investment funds based on risk assessments. Resource Management Challenges: There is a significant number of projects happening simultaneously, leading to resource conflicts, bottlenecks, and delays. Alignment with Business Goals: Many proposed projects do not align with company-wide business objectives, highlighting the need for better project selection and alignment. Project Delays and Impact on Revenue: Projects often experience substantial delays, adversely affecting revenue and ROI. This demonstrates the potential benefits of implementing project portfolio management software to improve efficiency and outcomes.
- 13. 13 SCOPE OF THE STUDY To provide basic idea of different stock market investment instruments to investor. To provide knowledge to investor about various type of risk associated with various investment instruments. would help them in selection of script and creation of portfolio. To help investor in learning about derivative instrument – future for the purpose of speculation and hedging.
- 14. 14 CHAPTER -2 REVIEW OF THE LITERATURE
- 15. 15 REVIEW OF THE LITERATURE Portfolio Performance Evaluation on Various Financial Models Author: Lalith Samarakoon Year: 2021 Portfolio performance evaluation is a crucial tool used to judge how a portfolio performs over a given period. The main evaluation methods include traditional (classical) portfolio performance evaluation and modern portfolio performance evaluation. This thesis focuses on four typical measures of traditional portfolio performance evaluation, including Jensen’s alpha, the Sharpe ratio, the generalized Sharpe ratio, and the Treynor ratio. These four measures are applied to three financial models: the single index model, the constant correlation model, and the multigraph model, and compared to determine which measure evaluates performance more accurately in different situations. Portfolio Performance Evaluation Author: Tanweer Hasan Year: January 2018 Portfolio performance evaluation involves determining how a managed portfolio has performed relative to some comparison benchmark. Performance evaluation methods generally fall into two categories: conventional and risk-adjusted methods. The most widely used conventional methods include benchmark comparison and style comparison. Risk-adjusted methods adjust returns to account for differences in risk levels between the managed portfolio and the benchmark portfolio. Measuring Portfolio Performance Author: Muhammad Shahid Year: 2019 Measuring portfolio performance has become an essential topic in the financial markets for portfolio managers, investors, and almost everyone involved in finance. It plays a critical role in the financial markets globally, helping stakeholders make informed investment decisions. The Performance of Stock Portfolios Year: November 2020 Recognizing that investment management is an ongoing process, the performance of actively-managed portfolios needs to be monitored and evaluated to ensure that funds under management are efficiently invested to satisfy the mandate specified in the policy statement. This paper discusses the primary
- 16. 16 performance evaluation techniques used to measure a portfolio’s basic risk and return characteristics, risk-adjusted performance, performance attribution, and market timing ability. Performance Evaluation Measures for Actively-Managed Portfolios Year: December 2022 Investment management involves managing collective investment schemes with the objective of creating wealth governed by the mandate specified in the policy statement. The investment management process is research-driven, typically involving the application of quantitative techniques to solve complex problems to achieve desired investment management outcomes. There are two major branches in investment management: active portfolio management and passive portfolio management. While passive portfolio management involves tracking a pre-specified benchmark, active portfolio management aims to outperform the benchmark portfolio of similar risk level and investment style. The primary concern for active portfolio managers is the ability to outperform the benchmark on a risk- adjusted basis. To improve the risk-adjusted performance of an actively-managed portfolio, factors that differentiate the performance between the portfolio and the benchmark must be identified. These factors include asset allocation ability, security selection ability, and market timing ability of the portfolio manager. Jamadar Lal (2022) presents a profile of Indian investors and evaluates their investment decisions. He studies their familiarity with and comprehension of financial information, and the extent to which this information is utilized. Companies’ annual reports and other statements often fail to meet the diverse needs of individual investors, who generally do not receive them well. Jack Clark Francis (2021) highlights the importance of the rate of return in investments and reviews the possibility of default and bankruptcy risk. He notes that in an uncertain world, investors cannot predict the exact rate of return an investment will yield, but they can formulate a probability distribution of possible rates of return. New academic portfolio theory extends traditional portfolio advice first posited by Markowitz (Journal of Finance, 1952). Traditional advice suggests a "two-fund theorem" that allocates between risk-free bonds and a broad-based passively managed stock fund. The most efficient portfolios on the mean- variance frontier can be formed by combining these two asset classes. Tailoring portfolios by adding style-based asset classes is inefficient because each of these classes lies on or inside the frontier. Therefore, every investor needs to hold only the two basic asset classes, with risk aversion determining the proportions. Cooper et al. (2021) define PPM as “the art and science of applying a set of knowledge, skills, tools, and techniques to a collection of projects to meet or exceed the needs and expectations of an organization’s investment strategy.” McDonough and Spital (2003) state that PPM is the “day-to-day management of the portfolio, including the policies, practices, procedures, tools, and actions managers take to manage resources, make allocation decisions, and ensure the portfolio is balanced to ensure successful portfolio-wide new product performance.” While PPM offers various benefits across different fields, according to Rongzeng et al. (2005), banks looking to reduce costs and eliminate waste in IT expenditure are advised to adopt a portfolio management approach. By undertaking an inventory analysis of their technology inventory, including
- 17. 17 applications and projects, firms can reduce IT expenditure by 10 to 40 percent (Kersten & Verhoef, 2003; Verhoef, 2002). Laslo (2010) indicates that to maintain agility while avoiding wasteful investments, a strong discipline of PPM is needed. IT organizations believe they cannot manage their projects with traditional project management tools and techniques and are looking to PPM as a necessity for their organizations. Several project management textbooks have added a chapter on PPM in their latest editions, and PPM has been introduced into project management standards (Killen et al., 2007). PPM's origin dates back to 1952 with Modern Portfolio Theory (MPT) by Markowitz (1952), which supports specifying the specific mix of investments that potentially generate the highest return for a given level of risk. While MPT was commonly used in financial investment, Bard et al. (1988) developed a mathematical solution to select R&D projects. McFarlan (1989) laid the foundation for the modern field of PPM for IT projects, believing management should apply a risk-based approach to the selection and management of IT project portfolios to avoid operational disruptions or gaps for competitors to exploit. In the early 1990s, Wheelwright and Clark (1992) developed the Aggregate Project Plan framework, emphasizing the extent of changes made to the product and the degree of process change. This framework helps identify gaps in the portfolio or potential resource shortages. Platje and Seidel (1993) introduced a new concept of portfolio thinking, where delegation and communication are crucial for successful multi-project management. Maio et al. (1994) identified main causes of failure, emphasizing the need to manage project interdependencies and product innovation problems. From the mid-1990s, PPM received growing attention (Reyck et al., 2005), with most authors focusing on selecting projects and benefit realization concepts. Early scholars highlighted the importance of choosing the right number of projects using mathematical models (Blichfeldt & Eskerod, 2008). In the 2000s, PPM gained significant attention from both industry and academic perspectives. Industries aimed to produce more PPM products, and academics used PPM to solve problems and achieve better outcomes. Topics like balancing and resourcing of PPM were discussed (Dickinson et al., 2001; Engwall & Jerbrant, 2003; Geraldi, 2008). Authors also described PPM from different angles, including program management (Gareis, 2000; Zhu et al., 2007) and multi-project management (Dye & Pennypacker, 2000; Engwall & Jerbrant, 2003). Late 2000s research focused on strategic alignment in PPM and optimizing project selections (Reyck et al., 2005; Iamratanakul et al., 2007, 2008, 2009). From 2010 onwards, most articles focused on optimizing resourcing or balancing projects (Araúzo et al., 2010; Laslo, 2010) and selecting and strategically aligning PPM frameworks (Jonas, 2010; Meskendahl, 2010). Padovani et al. (2006) studied critical gaps in portfolio management implementation, comparing how PPM tools and techniques were implemented and discovering problems with those implementations. Filippov et al. (2010) benchmarked effective PPM tools and methods to support managerial decision-making, emphasizing the need for organizations to know their goals before transitioning to PPM. Sarbazhosseini and Young (2012) acknowledged a gap between PPM theory and PPM software goals. Investing in securities such as shares, debentures, and bonds is both profitable and exciting. While rewarding, it involves significant risk and requires scientific knowledge as well as artistic skill. Such investments engage both rational and emotional responses. Financial securities are considered one of the best avenues for investing savings, despite being one of the riskiest investment options.
- 18. 18 Extending the analysis of portfolio performance and the evolution of PPM, this study delves into various models and methodologies that have been developed and refined over the years. The Markowitz model's influence on modern portfolio theory has been profound, providing a foundation for risk and return analysis. As financial markets and investment strategies continue to evolve, the need for robust portfolio management techniques becomes increasingly critical. This study aims to provide a comprehensive understanding of the current state of portfolio performance evaluation and project portfolio management, highlighting key developments and future directions in this field. Unger, Kock, Gemunden, and Jonas (2019) highlight the challenges organizations face in managing multiple projects concurrently to achieve strategic objectives. They emphasize that PPM addresses these challenges by acting as a central coordination unit. This unit supports senior management through its specialized knowledge of project portfolio practices, thereby facilitating the efficient execution of strategy. Patanakul (2020) offers a broad definition of PPM as the coordinated management of a collection of projects or programs to achieve specific organizational objectives. He posits that the primary focus of PPM is the accomplishment of an organization’s strategic business goals. Patanakul also points out that project portfolios are powerful strategic tools, emphasizing the complexity and difficulty of successful strategy implementation. Meskendahl (2018) elaborates on the critical role of project portfolios as central components in executing intended strategies. He stresses that organizations must focus on realizing their strategic objectives and creating value. Getz and Lee (2012) support this view, noting that a significant reason for failing to meet strategic goals is the lack of investment in managing strategy implementation compared to strategy formulation. Maddalena (2020) adds that executive leaders can enhance their organization’s strategic planning processes and accountability by incorporating project management principles during the strategy implementation phase. This approach ensures that strategic plans are not only well-conceived but also effectively executed. Lukac and Frazier (2019) emphasize the importance of defining and concretizing a company’s vision through strategic objectives. They argue that a clear articulation of these objectives helps in assessing the extent to which the vision is achieved. They also challenge management to be deliberate in their selection of initiatives, as stakeholders have varying needs and expect to see a connection between chosen initiatives, effective strategy execution, and the value realized by the organization. Friis, Holmgren, and Eskildsen (2015) acknowledge the challenges many organizations face in strategy development. They point out that strategies often become outdated quickly or are not implemented at all, highlighting a major contributor to failed strategies. Delayed decision-making can cause organizations to miss market opportunities. Cocks (2017) asserts that strategy formulation should involve input from the operational level to provide reliable insights into organizational capabilities and resource constraints. This inclusive approach fosters meaningful participation and buy-in from operational staff, who better understand the rationale behind strategy implementation. Cocks also notes the importance of skills in both strategy formulation and execution, although finding individuals who excel in both areas is rare.
- 19. 19 Patanakul (2018) stresses the need for measurable evaluation criteria to assess the effectiveness of project portfolios in achieving set goals. Such criteria are essential for making informed decisions about the relevance and value of projects. Projects that become redundant due to changing circumstances should be terminated to conserve resources. The literature review reveals that project termination is a sensitive issue that must be handled carefully to prioritize the organization’s best interests. Kock and Gemünden (2017) expand on Meskendahl’s work by defining key concepts related to strategic implementation success. These include the strategic fit of the project portfolio, portfolio balance, average product success, and synergy exploitation. Strategic implementation success is determined by how well the project portfolio aligns with strategic objectives and the perceived success of strategy implementation. Portfolio balance involves maintaining an equilibrium of risk, long- and short-term opportunities, and steady resource utilization. Average product success is measured by the commercial success of project outcomes, which collectively determine the quality and success of strategy implementation. Synergy exploitation refers to the added value that arises from dedicated portfolio management, which capitalizes on interdependencies and avoids redundancies. The proposed conceptual model, adapted from Meskendahl (2020), consists of four components: strategic intent, project portfolios, project portfolio success, and business success. The company’s strategy is articulated through its intent, which is broken down into aspirations and converted into strategic objectives with measurable targets. The project portfolio is structured to align with these strategic objectives, facilitating the translation of objectives into projects critical to achieving the corporate strategy. Project portfolios are designed to achieve success within time and resource constraints, with success defined in terms of economic value creation and the organization’s long-term vision. In essence, the integration of project portfolio management into strategic planning and execution processes is crucial for organizations aiming to realize their strategic goals and create value. The literature consistently highlights the importance of measurable objectives, deliberate initiative selection, and the involvement of operational staff in strategy formulation. Additionally, the effective management of project portfolios, including the assessment and termination of redundant projects, is vital for maintaining alignment with strategic objectives and ensuring resource efficiency. By synthesizing these insights, it becomes evident that successful strategy implementation requires a holistic approach that incorporates PPM principles. This approach ensures that strategic plans are not only theoretically sound but also practically executable, thereby enhancing the overall effectiveness of the organization’s strategic efforts. The proposed conceptual model serves as a framework for understanding how project portfolios can be structured and managed to achieve strategic and business success, emphasizing the critical role of alignmentevaluation, and continuous improvement in the strategy execution process.
- 21. 21 Research Design Research design is a crucial component in any research project, acting as the blueprint that outlines the methodologies and techniques used to conduct the study. It is often referred to as the glue that holds the research project together, providing a clear structure for data collection, analysis, and interpretation. In the present study, the research design focuses on portfolio diversification and involves two groups, each consisting of five companies. The design specifies the sources and types of data to be collected, as well as the analytical tools to be used. Primary Data Primary data in this research were gathered from various sources, including newspapers, magazines, the internet, brokers, and company journals. These sources provided current and relevant information necessary for analyzing the portfolio diversification of the selected companies. The primary data collection was aimed at obtaining firsthand information that is directly related to the research objectives. Data Collection Secondary data, which have already been collected and stored, played a significant role in this research. These data were readily available from records, journals, annual reports of the companies, trade magazines, balance sheets, and books. Utilizing secondary data helped save time, money, and effort, allowing the researcher to focus more on analysis rather than data collection. The use of secondary data provided a robust foundation for understanding the historical performance and strategic decisions of the selected companies. Tools Used for Analysis Various statistical tools were employed to analyze the data collected, ensuring the findings were accurate and meaningful. Arithmetic Average or Mean: The arithmetic average, or mean, measures the central tendency of a dataset. It provides a single representative value for a set of observations. This value is obtained by dividing the sum of all observations by the number of observations. For example, if there are N observations denoted as X1, X2, ..., Xn, the arithmetic mean (X) is calculated as: X=X1+X2+...+XnNX = frac{X_1 + X_2 + ... + X_n}{N}X=NX1+X2+...+Xn
- 22. 22 Return Calculation: The return on investment is calculated using the formula: Return=(Current Price−Previous PricePrevious Price)×100text{Return} = left(frac{text{Current Price} - text{Previous Price}}{text{Previous Price}}right) times 100Return=(Previous PriceCurrent Price−Previous Price)×100 Standard Deviation: Introduced by Karl Pearson in 1893, the standard deviation (S.D) is a measure of the dispersion or spread in a set of observations. It is defined as the positive square root of the arithmetic mean of the squares of deviations from the mean. For a set of N observations, the standard deviation is calculated as follows: Variance: The variance is the square of the standard deviation and provides a measure of the spread of a set of observations. It is calculated as: Variance=(S.D)2text{Variance} = (text{S.D})^2Variance=(S.D)2 Research Gap The study identifies a research gap in the area of investment planning and portfolio management. It emphasizes the potential benefits of planning investments with a financial adviser, as opposed to taking an ad hoc approach. A well-constructed portfolio can significantly increase the likelihood of meeting investment objectives within an acceptable level of risk. The research points out that both professional and private investors often build portfolios differently, typically described as bottom-up and top-down approaches.
- 23. 23 Limitations While this study provides valuable insights into portfolio management, it is subject to several limitations: Scope: The study was conducted to understand portfolio management specifically for investors, which may limit its applicability to other contexts. Sample Size: Only a few, randomly selected scrips from the BSE listings were analyzed, which may not represent the entire market. Data Parameters: The analysis focused on opening prices, closing prices, and dividends of the selected companies, potentially overlooking other significant factors. Depth of Study: Due to the limited size of the project, a detailed exploration of the topic was not feasible. Time Constraint: The research was conducted over a period of 45 days, which constrained the depth and breadth of the study. Detailed Analysis and Interpretation The study's approach to analyzing portfolio diversification involved both primary and secondary data, ensuring a comprehensive understanding of the selected companies' performance and strategic decisions. By employing statistical tools like the arithmetic mean, standard deviation, and variance, the research provided a clear picture of the central tendencies and dispersions in the data.
- 24. 24 The arithmetic mean was used to determine the average performance of the selected companies, providing a single value that represents the overall dataset. This measure helped in understanding the typical performance of the companies within each group. The calculation of returns offered insights into the profitability of investments in the selected companies. By comparing the current prices to the previous prices, the study assessed the percentage change, which is crucial for evaluating investment performance over time. Standard deviation and variance were used to measure the risk and volatility associated with the investments. These tools provided a quantitative assessment of the spread in the data, indicating the level of uncertainty and potential deviation from the mean performance. Implications for Investment Strategies The findings of this study have significant implications for investment strategies. By highlighting the importance of structured portfolio construction, the research suggests that investors should focus on selecting the right mix of assets that align with their investment goals and risk tolerance. The study also underscores the value of professional advice in planning and managing investments, as financial advisers can help in constructing a well-balanced portfolio that maximizes returns while minimizing risks.
- 26. 26 DATA ANALYSIS AND INTERPRETATION CALCULATION OF RETURN OF CIPLA Year Beginning price (Rs) Ending price (Rs) Dividend (Rs) 2019 898.00 1371.0 5 10.00 2020 1334.00 317.8 3.00 2021 320.00 448 3.50 2022 447.95 251.35 2.00 2023 251.5 212.65 2.00 INTERPRETATION: Return Dividend Ending Pr ice Beginning Pr ice) *100 Beginning Pr ice
- 27. 27 CIPLA RETURNS Years 2019 2020 2021 2022 2023 Returns 54.23% -75.95% 41.09% -43.44% -14.65% INTERPRETATION: In the above analysis the return of CIPLA in 2018-19,2019-20 ,2020-21 2021-22 2022-23 Are 54.23%, -75.95%,41.09%, -43.44%, -14.65% respectively. Based on the on top of analysis, we are able to say that the returns of CIPLA fluctuate.
- 28. 28 CALCULATION OF RETURN OF RANBAXY Year Beginning price(Rs) Ending price(Rs) Dividend (Rs) 2019 598.45 1095.25 15.00 2020 1109.00 1251.15 17.00 2021 1268 362.75 14.50 2022 363 391.8 8.50 2023 391 425.5 8.50 Re turn Dividend Ending Pr ice Beginning Pr ice) *100 Beginning Pr ice
- 29. 29 RANBAXY RETURNS Years 2019 2020 2021 2022 2023 Returns 85.52% 14.35% -70.24% 10.27% 10.99% INTERPRETATION: In the above analysis the return of RANBAXY in 2019-20 ,2020-21,2021-22, 2022-23, 2023-24 is 85.52%, 14.35%,-70.24%, 10.27%, 10.99% respectively. Based on the higher than analysis, area unit able to} say that RANBAXY's returns decline in 2015-16 and are negative.
- 30. 30 CALCULATION OF RETURN OF MAHENDRA&MAHENDRA Year Beginning price (Rs.) Ending price (Rs.) Dividend (Rs.) 2019 113.45 388.8 5.50 2020 392.55 545.45 9.00 2021 547.10 511.6 13.00 2022 514.80 908.45 10.00 2023 913.00 861.95 11.50 Return Dividend Ending Pr ice Beginning Pr ice) *100 Beginning Pr ice
- 31. 31 MAHENDRA & MAHENDRA RETURNS Years 2019 2020 2021 2022 2023 Returns 247.55% 41.24% -4.11% 78.41% -4.3% INTERPRETATION: In the above analysis the return of MAHENDRA & MAHENDRA in 2019 2020 2021 2022 2023 , is 247.55, 41.24%, -4.11%, 78.41%, -4.3% respectively. Based on the on top of analysis, we are able to say that the returns of MAHENDRA & MAHENDRA fluctuate over the amount.
- 32. 32 CALCULATION OF RETURN OF BAJAJ AUTO Year Beginning price (Rs) Ending price (Rs) Dividend (Rs) 2019 502 1136.3 14.00 2020 1125.05 1131.2 25.00 2021 1149.00 2001.1 25.00 2022 2016.00 2619.15 40.00 2023 2648.65 2627.9 40.00 Re turn Dividend Ending Pr ice Beginning Pr ice) *100 Beginning Pr ice
- 33. 33 BAJAJ AUTO RETURNS Years 2019-2020 2020-2021 2021-2022 2022-23 2023-24 Returns 129.14% 2.77% 76.34% 31.9% 0.726% In the above analysis the return of BAJAJ AUTO in -20, is 129.14, 2.77%, 76.34%, 31.9%, 0.726% respectively. From the on top of analysis, we will say that BAJAJ auto returns fluctuate and perform very well or very poorly.
- 34. 34 1 R R2 N 1 CALCULATION OF STANDARD DEVIATION OF CIPLA Year Return (R) R R R R R 2 2019 54.23 -7.744 61.974 3840 2020 -75.95 -7.744 -68.206 4652 2021 41.09 -7.744 48.834 2384 2022 -43.44 -7.744 -35.696 1274 2023 -14.65 -7.744 -6.906 47.692 -38.72 12197.692 Average Return= R N= number of years = 38.72 5 .744 Variance = 1 R R 2 N 1 S tandard Deviation Variance = = 55.22 1 5 1 12197.692
- 35. 35 1 R R2 N 1 CALCULATION OF STANDARD DEVIATION OF RANBAXY Year Return (R) R R R R R 2 2019 85.52 10.18 75.34 5676 2020 14.35 10.18 4.17 17.39 2021 -70.24 10.18 -80.42 6467 2022 10.27 10.18 0.09 0.0081 2023 10.99 10.18 0.81 0.6561 50.89 12161 Average Return= R N N= number of years = 50.89 5 Variance = 1 R R 2 N 1 S tandard Deviation Variance = = 55.13 1 5 1 12161
- 36. 36 1 R R2 N 1 CALCULATION OF STANDARD DEVIATION OF MAHENDRA&MAHENDRA Year Return (R) R R R R R 2 2019 247.45 71.758 175.79 30902.8 2020 41.24 71.758 -30.52 931.47 2021 -4.11 71.758 -75.868 5755.95 2022 78.41 71.758 6.652 44.25 2023 -4.3 71.758 -76.058 5784.82 358.79 43419.3 Average Return= R N N= number of years = 358.79 5 Variance = 1 R R 2 N 1 S tandard Deviation Variance = = 104.186 1 5 1 43419.3
- 37. 37 1 R R2 N 1 CALCULATION OF STANDARD DEVIATION OF BAJAJ AUTO Year Return (R) R R R R R 2 2019 129.14 48.175 80.965 6555.3 2020 2.77 48.175 -45.405 2061.6 2021 76.34 48.175 28.165 793.3 2022 31.9 48.175 -16.275 264.9 2023 0.726 48.175 -47.449 2251.4 240.876 11926.5 Average Return= R N N= number of years = 240.876 5 Variance = 1 R R 2 N 1 S tandard Deviation Variance = = 54.6 1 5 1 11926.5
- 38. 38 CORRELATION BETWEEN CIPLA & RANBAXY Covariance of CIPLA & RANBAXY = 1 (R N CIPLA - RCIPLA ) (RRBX - RRBX) = 1 (448.667) 5 = 89.7334 Correlation – Coefficient CIPLA & RANBAXY = COV CIPLA,RBX CIPLA, RBX CIPLA RBX = 89.7334 (55.22)(55.13) = 0.0295 Year DEVIATION OF CIPLA (RCIPLA - R CIPLA) DEVIATION OF RANBAXY (RRBX- R RBX) COMBINED DEVIATION (RCIPLA - R CIPLA)(RRBX- R RBX) 2019 61.974 75.34 4669.12 2020 -68.206 4.17 -284.42 2021 48.834 -80.42 -3927.23 2022 -35.696 0.09 -3.213 2023 -6.906 0.81 -5.59 448.667
- 39. 39 CORRELATION BETWEEN BAJAJ AUTO AND MAHENDRA&MAHENDRA Year Deviation of Bajaj Auto (RBJ - R BJ) Deviation Of Mahendra & Mahendra (RM&M - R M&M) COMBINED DEVIATION (RBJ - R BJ) (RM&M - R M&M) 2019 80.965 175.79 14232.84 2020 -45.405 -30.52 1385.76 2021 28.165 -75.868 -1909.22 2022 -16.275 6.652 -108.26 2023 -47.449 -76.058 3608.87 17210 Covariance of Bajaj Auto and Mahindra & Mahendra = 1 (R - N BJ RBJ )(RM&M - RM&M ) = 1 (17210) 5 = 3442 Correlation – Coefficient Bajaj Auto and Mahendra & Mahendra = COV BJ ,M &M BJ , M &M BJ M &M = 3442 (54.60)(104.586) = 0.605
- 40. 40 CORRELATION BETWEEN CIPLA & BAJAJ Covariance of CIPLA& BAJAJ= 1 (R N CIPLA - RCIPLA )(RBJ - RBJ ) = 1 (10398.70) 5 = 2079.74 Correlation – Coefficient CIPLA& BAJAJ = COV CIPLA,BJ CIPLA, BJ CIPLA BJ = 2079.74 (55.22)(54.60) = 0.690 Year DEVIATION OF CIPLA (RCIPLA- R CIPLA) DEVIATION OF BAJAJ (RBJ - R BJ) COMBINED DEVIATION (RCIPLA- R CIPLA) (RBJ - R BJ) 2019 61.974 80.965 5017.72 2020 -68.206 -45.405 3096.90 2021 48.834 28.165 1375.41 2022 -35.696 -16.275 580.95 2023 -6.906 -47.449 327.68 10398.70
- 41. 41 STANDARD DEVIATION COMPANY STANDARD DEVIATION CIPLA 55.22 RANBAXY 55.13 M&M 104.186 BAJAJ AUTO 54.60 Standard Deviation The analysis higher than offers the quality deviation for CIPLA, RANBAXY, MAHENDRA & MAHENDRA, BAJAJ AUTO, that is fifty-five,22,55,13,104,186,54,60 SD.
- 42. 42 AVERAGE RETURN OF COMPANIES COMPANY AVERAGE CIPLA -7.744 RANBAXY 10.18 M&M 71.758 BAJAJ AUTO 48.175 Average INTERPRETATION: The chart higher than shows the common returns of CIPLA, RANBAXY, MAHENDRA & MAHENDRA, BAJAJ motorcar with average returns of -7.744, 10.18, 71.758 and 48.175, severally. M & M have the best average come back of seventy one,758.
- 43. 43 CORRELATION COEFFICIENT COMPANY BAJAJAUTO&MAHINDRA 0.605 CIPLA&RANBAXY 0.0295 CIPLA&BAJAJ AUTO 0.690 Correlation Coefficient INTERPRETATION: The diagram on top of shows the correlation of various mixtures. BAJAJ motor vehicle and MAHENDRA & MAHENDRA have zero.605, CIPLA and RANBAXY have zero.0295, CIPLA and BAJAJ motor vehicle have zero.690. the best correlation exists between CIPLA and BAJAJ motor vehicle.
- 44. 44 PORTFOLIO WEIGHTS: CIPLA & RANBAXY 2 ( )( ) RBXCIPLA,RBX RBX CIPLA CIPLA 2 RBX 2 2 CIPLA,RBX ( RBX )( CIPLA ) XRBX = 1 – XCIPLA CIPLA = 55.22 RBX = 55.13 0.0295 (55.13) 2 - 0.0295 (55.22) (55.13) XCIPLA = (55.22) 2 + (55.13) 2 - 2 (0.0295) (55.22) (55.13) XCIPLA XRBX = = 0.49916 1 – XCIPLA XCIPLA = 0.49916 XRBX = 0.50084
- 45. 45 BAJAJ AUTO and MAHENDRA & MAHENDRA: M &M BJ ,M &M M &M BJ X BJ 2 M &M BJ, M &M (M &M ) ( BJ ) XM&M = 1 – XCIPLA BJ = 54.60 M &M = 104.186 BJ ,M&M = 0.605 (104.19)2 - 0.605 (54.60) (104.19) XBJ = (54.60)2 + (104.19)2 - 2 (0.605) (54.60) (104.19) X BJ = 1.0662 X M&M = 1 – XBJ X BJ = 1.0662 X M&M = -0.0662
- 46. 46 PORTFOLIO RETURN & PORTFOLIO RISK Two Portfolios Correlation n Coefficient ab Company Xa Company Xb Portfolio Return Rp Portfolo Risk σp CIPLA& RANBAXY 0.0295 0.49916 0.50084 1.2335 39.58 BAJAJ AUTO and M&M 0.605 1.0662 -0.0662 46.614 54.14 PORTFOLIO RETURN RP Ra Xa Rb Xb PORTFOLIO RISK P X 2 2 a a X 2 2 b b 2X X a b ab a b
- 47. 47 PORTFOLIO RETURN (RP) CIPLA&RANBAXY 1.233 BAJAJ AUTO and M&M 46.614 Portfolio Return RP BAJAJ and MAHENDRA & amp; MAHENDRA have a portfolio come of 46.614, that is over CIPLA and RANBAXY of 1.233.
- 48. 48 PORTFOLIO RISK CIPLA&RANBAXI 39.58 BAJAJ and M&M 54.14 Portfolio Risk The portfolio risk of BAJAJ and M & M is 54.14. this is often quite the portfolio risk of CIPLA and RANBAXY of 39.58.
- 50. 50 FINDINGS CIPLA & RANBAXI, BAJAJ car and MAHENDRA & MAHENDRA: The mix of CIPLA And RANBAXI provides an investment of zero.49916 and zero.50084 severally for CIPLA and RANBAXI. Supported the quality deviations. the quality deviation for CIPLA is fifty five.22 and for RANBAXI fifty five.13. Therefore, investors ought to invest their funds a lot of heavily in RANBAXI compared to CIPLA because the risk related to RANBAXI is less than CIPLA because the variance of RANBAXI is less than that of CIPLA. The mix of BAJAJ car And MAHENDRA & MAHENDRA leads to an investment of one.0662 and -0.0662 for BAJAJ car and MAHENDRA & MAHENDRA, severally. Supported the quality deviations. the quality deviation for MAHENDRA & MAHENDRA is 104.186 and for BAJAJ car fifty four.60. Therefore, the capitalist ought to invest his funds a lot of in BAJAJ car compared to MAHENDRA & MAHENDRA, because the risk related to BAJAJ car is less than that of MAHENDRA & MAHENDRA, because the variance of BAJAJ car is less than that of MAHENDRA & MAHENDRA.
- 51. 51 SUGGESTIONS The capitalist might earn if they come on the portfolio of equities and bonds is spoken as a heterogeneous portfolio. The portfolio construction would thus be directed to 3 major via. property, temporal arrangement and diversification. within the case of portfolio management, negatively related assets area unit the foremost profitable. The correlation between MAHENDRA & MAHENDRA and BAJAJ automotive vehicle is negatively related , which suggests that each portfolio combos can have a decent profit position within the future. Investors will invest their cash over the future as a result of each combos area unit the foremost applicable portfolios. an affordable capitalist would perpetually check his elite portfolio for average come and risk. Diversification is additionally to be thought of. the mixture of risk aversion, yield maximization and diversification is that the best tool for profit.
- 52. 52 CONCLUSION The standard deviation of Ranbaxy is lower, indicating it might be wiser to invest in Ranbaxy rather than Cipla as part of a diversified portfolio. Similarly, the lower quality deviation of Bajaj Automotive suggests it could be more advantageous to invest in Bajaj Automotive instead of Mahindra & Mahindra. Investing in positively correlated securities can reduce overall risk. For negatively correlated securities, the company-specific risk can be minimized to zero, though the market risk associated with the portfolio remains unchanged.
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