Type of paper: Report

Topic: Portfolio, Investment, Finance, Return, Risk, Management, Marketing, Market

Pages: 10

Words: 2750

Published: 2020/09/20


The entire field of financial management has been categorized on different things and techniques that include financial analysis, accumulation and management of finance, and investment analysis and management. Investment management is a branch of finance that specifically associated with the management of the investment through sophisticated tools and techniques, used by the investment analysts to value their investment.
Investment techniques are always sophisticated and complex, and it required lots of hard work, study, investigation and analysis to complete it in a comprehensive manner. Some of the major investment techniques that used by the analyst in the field of finance are standard deviation, mean return, beta, co-variance and others. Considering the fact that financial markets usually works on the fundamental and technical analysis, therefore it is essential to have the same before parking the physical investment in the market.
Markowitz, one of the famous names in the history of financial management which had introduced one of the most important concepts in the entire field of investment management through which a researcher or investor can decrease the amount of riskiness from the investment, and can increase the worth of their investment consequently known as Portfolio management. Portfolio management is all about managing the portfolio comprises with different securities. It is required to write an investment management report comprises on five different stocks. It is required to form an optimal portfolio through the analysis with examining the amount of riskiness of the portfolio with that of the Standard & Poor (S&P) market. There are numerous sections that needed to be addressed to complete this research report.


The objective of this research is to apply some of the most sophisticated investment management techniques used in the entire field of investment management. Apart from this computation, it is also required to make an advice regarding the optimal portfolio that can decrease the riskiness of the portfolio, and resultantly will increase the power of return of the portfolio. Obviously, the major objective of every investment is attaining high amount of yield, and maximize the amount of initial investment. Individuals as well as organizations use different aspects for the consideration of high return on their investment. One of the major objectives that should be required to achieve from this report is to have an idea regarding the riskiness of the individual security as compared to the market return. The market that considers for the analysis is S&P-500 Index. One of the major objectives in this particular assignment is to demonstrate the ability to manage and mitigate the risk through proper diversifications.

What Method Applies

There can be numerous methods that can be applied exclusively on the field of investment management, however there are some sophisticated techniques that use by most of the investors and analysts to analyze the workability and effectiveness of a portfolio. Some of the basic techniques that can be used for the same purpose are, mean return, standard deviation, variance, correlation, co-variance and beta. All of the aforementioned techniques will be used and applied in this particular project to get on the result related to the performance of the portfolio comprehensively. Apart from that, Security market Line (SML) and Capital Allocation Line (CAL) have also used to assess the optimal portfolio that can have the right amount of investment by absorbing a particular amount of riskiness in the portfolio.

What is the Purpose and why Forming them

After the current global economic crisis, most of the individuals as well as companies of the world have been moving towards the management of risk. Management of risk has now emerged as an important element through which the power and effectiveness of a portfolio can be increase with a positive attitude. Most of the investors and organizations in all over the world are now focusing on managing the portfolio of the security they have or wishes to have in future. That is why the importance of managing portfolio has elevated strongly in different parts of the world. The main reason behind selecting the aforementioned sophisticated models and techniques is that all of the techniques are powerful, and have the tendency to minimize the level of risk of the portfolio accordingly.

Performance Result Analysis

There are certain things that needed to be addressed in this particular analysis on the basis of selected companies for the management of portfolio. The companies which have been selected for the same analysis are EQR, PSA, QEM, SPG and VNQ.
In this particular part of the analysis, it is required to compute the daily, monthly and average return of the selected securities along with analyzing their standard deviation and correlation with each other. From the daily and monthly result of all of the five selected securities, it is clear that the level of fluctuations in the returns of all of these securities are very high, hence making of portfolio would be worthwhile. QEM is the only security in which the level of return fluctuation is the lowest as compared to four other securities. From the average return, it is found that the return associated with EQR is the highest with 0.001392%, followed by SPG and PSA with 0.001113% and 0.001042% respectively. It is clearly seeing that EQR is having comparatively a better time in terms of trading in the market of S&P as compared to other companies. QEM has the lowest amount of return with an average value of 0.000470%. Apart from return, it is also advised to compute the standard deviation of the individual securities which often used for the analysis of riskiness factor. The riskiest asset out of these five ones is QEM with a value of 0.0115%. This particular company also has the lowest amount of return as well. Hence, this company will not be a good choice to retain it in the investment portfolio. EQR has the second highest riskiness level among the other securities with a value of 0.0090% followed by SPG and PSA respectively. In terms of correlation, all the companies have a positive relationship with each other, which is showing that making of portfolio might not be effective, because the movement of the companies in terms of generating return will be in the same direction. The correlation factor among SPG and VNQ is the highest followed by the correlation level among PSA and VNQ. Precisely, it is found from the correlation analysis that the risk and return factor of all of these five securities will move with each other. Apart from the correlation, co-variance factor is also showing the same result related to the selected securities that they will move together
Management of portfolio can be extremely worthwhile for an investor as far as managing the level of riskiness from the portfolio is concerned. In this particular section, it is required to make a portfolio comprises on two or three portfolios out of the five securities selected. The securities which have been selected for this particular section are EQR and SPG. The average returns of both of these securities are 0.001391% and 0.001113% respectively with a strong and high correlation factor of 0.65. The level of standard deviation and variance of these individual securities are 0.0090%, 0.0079% and 0.0000084% and 0.00000634% respectively. Making of portfolio certainly works perfectly well for the investor as far as managing the return and standard deviation is concerned. The return of portfolio becomes 0.001252% after combining both of the securities with different allocating rates. On the other hand of return, the level of riskiness that examines through the standard deviation has actually decreased by making the portfolio and went on a level of 0.00801% which is comparatively lower than that of the risk factor related to individual securities. It is showing that making of portfolio certainly works for the investor in terms of mitigating the level of risk and resultantly increases the yield on the investment.
The Efficient Frontier is basically a line of return that found whether the investment is perfectly matched with the allocated weights or not. It is an important measurement tool of investment that used to examine the direction of the investment in the future. Capital Allocation line (CAL) and Efficient frontier line has been made with each other, and both of them can be found parallel to each other, showing that allocation of weights are on the right track for the investment.
Optimal Portfolio is the most important category of finance and portfolio management. Optimal Portfolio means the portfolio that can yield the highest return to the investor. There are around 500 simulations which have been run to reach on the final decision of finding the optimal portfolio of the assets. Optimal Portfolio is the point at which the investors are getting the highest amount of return with the lowest amount of risk. However, it is usually associated with the intentions of the investors, along with the power of their own portfolio. In this particular analysis, the CAL is quite nearer to the level of efficient portfolio, showing a remarkable combination of setting the weights of the securities. In terms of allocating the weights, high amount of allocation has been initiated with the stocks of SPG because the level of risk factor is comparatively lower than that of EQR. The allocated weight with SPG is 0.93, while it is only 0.069 for EQR. The return of the portfolio after considering these weights for making optimal portfolio is 0.001132% with a portfolio standard deviation of 0.00783%. This optimal portfolio analysis is showing that the investors have to take the same amount of allocation during their investment, as it gives the best result in terms of mitigating risk and increasing return.
In this particular section, it is advised to have a maximizing portfolio utility by assigning major scores for A =2, 7 and 10. Maximization in the utility will ultimately increases the power of the portfolio with a positive mean and attitude. There are somewhat different figures have been found after changing the values of A to 2, 7 and 10. The average maximizing return related to the aforementioned numbers are 0.001123%, 0.000801% and 0.000608% respectively. Apart from this the standard deviation according to this utility is 0.0039%, while the portfolio return would become 0.0018%. This particular analysis is showing that the allocation of investment has been done perfectly well in terms of maximizing the return on the investment along with mitigating the systematic risk through diversification.
Riskiness is the name of happening of unprecedented and unwanted event. Risk level basically shows the level of proportion of risk that can be found in an investment in a given time period. It is very important for an investor to mitigate the level of risk from their investment in order to maximize the level of their return explicitly. Apart from the standard deviation tool, which has been used in this particular analysis for risk mapping and analysis, there is yet another tool that can be used for somewhat same purpose, known as Beta. Theoretically, a beta is risk measure that analyzes the level of systematic risk that can be mitigating through proper diversification. Systematic risk is the type of risk that associated specifically with the kind of risk that has the ability to control through effective diversification. There is a marginal difference found among the risk level computed through the standard deviation, and risk level computed through the Beta. Generally, beta used to compare the risk of the individual security or portfolio with that of the risk of the market. In this scenario, the market is Standard and Poor (S&P)-500 which will be taken into consideration for the analysis. From the computation, it is evaluated that the Beta of EQR as compared to the S&P-500 is 0.22, while it is 0.29 for SPG as compared to the S&P market. These figures are showing that the levels of risk associated with these individual securities are comparatively lower than that of the risk level of S&P-500. Precisely, it can also be said that the individual securities are less risky than that of the market.
The last section of this report associated with the five techniques of portfolio performance through which the power of portfolio management can be analyzed exclusively. It is likely to analyze the power of the portfolio return with that of the return of the benchmark, which is S&P-500. Firstly, the technique that should be examined here is average return. The average return on the S&P-500 market is 0.000531% while it is 0.001132% in terms of making and managing the portfolio with the same two securities. It is showing that making and managing the portfolio of the two securities would yield comparatively higher return than the return associated with the individual market return that lies in the favor of the investor. The second thing technique that should be considered while comparing the difference is standard deviation and risk factor associated with S&P market is 0.01011%, while it is 0.00783% in terms of managing the portfolio. It is clear that making and managing the portfolio will be effective for the investor in terms of the investment as compared to the individual security. It is also complying with the theory presented by Markowitz that making a portfolio will always decrease the level and amount of risk from a portfolio. The third technique that can be used for comparing the effectiveness of S&P-500 market and the portfolio is variance. The computed variance of the portfolio is 0.00000614%, while it 0.000102% for the S&P-500 market, showing that S&P-500 market is relatively riskier than that of the optimal portfolio. This particular technique is again lies in the favor of the investor in terms of making the portfolio instead of relying on the S&P-500 market. The forth technique that can be examine for the comparison analysis is Beta, which generally used for comparing the individual riskiness of the security with the market return particularly. The analysis shows that the betas of both of the computed securities are lower than the risk of market. Precisely, it is demonstrating that the provision of riskiness of the individual security is comparatively lower than that of the market. It is again favoring the investor to park the money by making portfolio rather than in the individual securities. The last section of the analysis that can be taken into account for the analysis is efficient frontier in which it is showing that the allocation of the securities have been placed at the right level. From all of these five techniques, it is clear that the investment in making of portfolio would be comparatively sounder than the investment in the S&P-500 Individually. It is recommended to the investor to invest in the securities with the help of portfolio management, as it will fulfill the appetite in a sound manner, as comparing to the investment individually.


Investment analysis is one of the most important types and forms of financial management subject and structure that can be examined with the help of different sophisticated tools and models. In this particular analysis, some of the most sophisticated and widely used techniques have been used to compare the investment stance by making a portfolio or in the individual S&P-market. After critical observation, and applying five different relevant techniques, it is found that managing the portfolio would be comparatively sounder than that of the investment individually in the S&P-500 market. From the entire demonstration and analysis, it is now clear that the idea presented by Markowitz related to optimal portfolios and portfolio management was absolutely right, and it certainly helps an investor to mitigate the level of risk and resultantly increases the return.

Learning outcomes Achieved

There are number of learning outcomes achieved exclusively from this analysis, like investment and risk management. The assignment demonstrated how making a portfolio can decrease the amount of risk from an investment, and how the return of a portfolio can be increased substantially. The application of sophisticated and relevant techniques enables the researcher to examine some of the complex methods in the future, and examine the things in a more appropriate manner. Apart from that, the learning outcome of making the optimal portfolio has also been achieved completely through this particular analysis.

Future Study Examination

The tools which have been used in this research report are some of the most effective ones used for investment management, however for future research, other investment tools like Value at Risk (VAR) and others can be used which have the tendency to examine the risk in a more effective manner.

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WePapers. (2020, September, 20) Free Finance Report Report Sample. Retrieved April 17, 2024, from https://www.wepapers.com/samples/free-finance-report-report-sample/
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"Free Finance Report Report Sample," Free Essay Examples - WePapers.com, 20-Sep-2020. [Online]. Available: https://www.wepapers.com/samples/free-finance-report-report-sample/. [Accessed: 17-Apr-2024].
Free Finance Report Report Sample. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/free-finance-report-report-sample/. Published Sep 20, 2020. Accessed April 17, 2024.

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