mCollection of assets mNeed for portfolio management. mTypes of risk- systematic and unsystematic.
Steps in portfolio management O. identification of objectives. 2. Portfolio strategy 3. Selection of asset mix 4. Portfolio execution. 5. Portfolio revision 6. Portfolio evaluation
R ANASS m TRADITIONAL APPROACH m Risk can be measured on each security through
standard deviation. And security having lowest standard deviation must be selected. m MODERN APPROACH m Includes combination of securities to form a portfolio. m Relationship among different securities
6 NA N 2 SE6 ES m 6 m 6
m 6 0 !
m m "
6 EA N 6 E6EN m r(xy)= cov xy/ ºx ºy m r (xy)- correlation coefficient between x and y m ºx- standard deviation of X m ºy- standard deviation of Y m R (xy) varies from -O to +O m ariance of portfolio m = º2 p= w2 x º2 x + w2 y º2 y+ 2 wx wy r(xy) ºx ºy
expected return O5% 20%
º 50% 30%
X Y sol. Risk of portfolio= (.4 x .O5)+ (.60 x .20) = O% ariance of portfolio = (.4)2 (50) 2 +(.6) 2 (30) 2 + 2x .4 x .6x 50x 30 x (-0.45) = 400 +324 -324 = 400 ºp= 20
6ASE S WR AN 6 m Calculated the return on portfolio of ITC and wipro. m A ERAGE RETURN OF WIPRO m Average Return
= (R)/N m Average Return = O4.O3/5 = 2.3 Opening Closing m share price share price Year (P0) (P1) m á áá á á á á á