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    Es#ma#ng Required Return of Shareholders: Exercise: Markowitz Mantra

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    Raju Kumar
    This document discusses portfolio optimization and the capital asset pricing model. It provides analysis of various stocks' systematic and unsystematic risk, correlations between stocks, efficient portfolios using the minimum variance principle, expected returns calculated with CAPM, and the capital market line showing the risk-return tradeoff of combining risky and riskless assets. Key metrics like betas, variances, weights, and returns are presented for different stocks and portfolios.

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    Es#ma#ng Required Return of Shareholders: Exercise: Markowitz Mantra

    Uploaded by

    Raju Kumar
    53 views13 pages
    This document discusses portfolio optimization and the capital asset pricing model. It provides analysis of various stocks' systematic and unsystematic risk, correlations between stocks, efficient portfolios using the minimum variance principle, expected returns calculated with CAPM, and the capital market line showing the risk-return tradeoff of combining risky and riskless assets. Key metrics like betas, variances, weights, and returns are presented for different stocks and portfolios.

    Original Description:

    Cosy Of equity

    Original Title

    5 Estimating Cost of Equity

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    This document discusses portfolio optimization and the capital asset pricing model. It provides analysis of various stocks' systematic and unsystematic risk, correlations between stocks, efficient portfolios using the minimum variance principle, expected returns calculated with CAPM, and the capital market line showing the risk-return tradeoff of combining risky and riskless assets. Key metrics like betas, variances, weights, and returns are presented for different stocks and portfolios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    53 views13 pages

    Es#ma#ng Required Return of Shareholders: Exercise: Markowitz Mantra

    Uploaded by

    Raju Kumar
    This document discusses portfolio optimization and the capital asset pricing model. It provides analysis of various stocks' systematic and unsystematic risk, correlations between stocks, efficient portfolios using the minimum variance principle, expected returns calculated with CAPM, and the capital market line showing the risk-return tradeoff of combining risky and riskless assets. Key metrics like betas, variances, weights, and returns are presented for different stocks and portfolios.

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    Es#ma#ng

    Required Return of
    Shareholders
    Exercise: Markowitz Mantra

    Markowitz Model

    Markowitz Model

    2
    2
    2
    (A+B) = A + B + 2AB

    Risk Decomposi#on
    Systema#c Risk

    i2 m2

    2
    i
    Unsystema#c Risk

    2(ei)
    Total Risk

    Propor#on of Risk
    RIL TATA SBI Infosys Biocon Nifty Portfolio
    SD
    1.62% 2.12% 2.46% 1.74% 2.54% 1.42% 1.50%
    Sys Risk
    1.12% 1.07% 1.37% 0.85% 0.21% 1.42% 1.18%
    Unsys Risk
    0.50% 1.06% 1.08% 0.89% 2.33% 0.00% 0.32%
    Percenatge of Sys Risk 69.05% 50.14% 55.97% 49.00% 8.23% 100.00% 78.39%
    Percenatge of Unsys Risk30.95% 49.86% 44.03% 51.00% 91.77% 0.00% 21.61%

    Types of Diversica#on
    Industrial
    diversica#on

    Geographical
    diversica#on

    Ownership
    diversica#on

    Time
    diversica#on

    Technological
    diversica#on

    Employee
    diversica#on

    Correla#on
    RIL

    TATA SBI Infosys Biocon Nifty

    RIL

    1.00

    TATA

    0.52

    1.00

    SBI

    0.64

    0.61

    1.00

    Infosys 0.54

    0.41

    0.44

    1.00

    Biocon 0.25

    0.19

    0.19

    0.24

    1.00

    Nifty

    0.71

    0.75

    0.70

    0.29

    0.83

    1.00

    Extreme PorPolios
    RIL
    AM
    0.25%
    SD
    1.62%
    Variance
    0.03%
    Co-efficient of Variation
    6.56
    Beta
    0.95
    RSQ
    69%
    Sys Risk
    1.12%
    Unsys Risk
    0.50%
    Weight
    40.10%
    Mean Variance Ratio
    9.470
    Mean SD Ratio
    0.152
    Percenatge of Sys Risk 69.05%
    Percenatge of Unsys Risk 30.95%

    TATA
    -0.25%
    2.12%
    0.04%
    -8.59
    1.06
    50%
    1.07%
    1.06%
    12.41%
    -5.529
    -0.116
    50.14%
    49.86%

    SBI
    0.19%
    2.46%
    0.06%
    12.76
    1.30
    56%
    1.37%
    1.08%
    0.00%
    3.217
    0.078
    55.97%
    44.03%

    Infosys
    -0.12%
    1.74%
    0.03%
    -14.50
    0.86
    49%
    0.85%
    0.89%
    31.10%
    -3.985
    -0.069
    49.00%
    51.00%

    Biocon Nifty Portfolio


    0.15% 0.07%
    0.06%
    2.54% 1.42%
    1.39%
    0.06% 0.02%
    0.02%
    16.53
    19.72
    24.62
    0.51
    1.00
    0.87
    8%
    100%
    78%
    0.21% 1.42%
    1.08%
    2.33% 0.00%
    0.30%
    16.39% 100.00%
    2.406
    3.613
    2.928
    0.060
    0.051
    0.041
    8.23% 100.00% 78.23%
    91.77% 0.00% 21.77%

    RIL
    AM
    0.25%
    SD
    1.62%
    Variance
    0.03%
    Co-efficient of Variation
    6.56
    Beta
    0.95
    RSQ
    69%
    Sys Risk
    1.12%
    Unsys Risk
    0.50%
    Weight
    100.00%
    Mean Variance Ratio
    9.470
    Mean SD Ratio
    0.152
    Percenatge of Sys Risk 69.05%
    Percenatge of Unsys Risk 30.95%

    TATA
    -0.25%
    2.12%
    0.04%
    -8.59
    1.06
    50%
    1.07%
    1.06%
    0.00%
    -5.529
    -0.116
    50.14%
    49.86%

    SBI
    0.19%
    2.46%
    0.06%
    12.76
    1.30
    56%
    1.37%
    1.08%
    0.00%
    3.217
    0.078
    55.97%
    44.03%

    Infosys
    -0.12%
    1.74%
    0.03%
    -14.50
    0.86
    49%
    0.85%
    0.89%
    0.00%
    -3.985
    -0.069
    49.00%
    51.00%

    Biocon
    0.15%
    2.54%
    0.06%
    16.53
    0.51
    8%
    0.21%
    2.33%
    0.00%
    2.406
    0.060
    8.23%
    91.77%

    Nifty Portfolio
    0.07% 0.25%
    1.42% 1.62%
    0.02% 0.03%
    19.72
    6.56
    1.00
    0.95
    100%
    69%
    1.42% 1.12%
    0.00% 0.50%
    100.00%
    3.613
    9.392
    0.051
    0.152
    100.00% 69.05%
    0.00% 30.95%

    Ecient Fron#er

    PorPolio op#miza#on is achieved through Dominance Principle

    78

    Ecient Fron#er
    0.30%
    0.25%
    0.20%
    0.15%
    0.10%
    0.05%
    0.00%

    CAL

    Risk
    1.62%
    1.60%
    1.58%
    1.56%
    1.54%
    1.52%
    1.50%
    1.48%
    1.46%
    1.44%
    1.42%
    1.40%
    1.39%

    Return
    0.25%
    0.25%
    0.24%
    0.24%
    0.24%
    0.23%
    0.22%
    0.21%
    0.19%
    0.18%
    0.15%
    0.12%
    0.06%

    RIL
    99.64%
    97.51%
    95.16%
    92.51%
    89.33%
    85.05%
    79.00%
    75.47%
    71.44%
    66.73%
    60.67%
    53.02%
    40.10%

    Weights
    TATA SBI Infosys
    0.00% 0.00% 0.00%
    0.00% 0.00% 0.00%
    0.00% 0.00% 0.00%
    0.00% 0.00% 0.00%
    0.00% 0.00% 0.00%
    0.00% 0.00% 0.00%
    0.00% 0.00% 1.31%
    0.00% 0.00% 5.11%
    0.00% 0.00% 9.41%
    0.00% 0.00% 14.56%
    0.86% 0.00% 20.24%
    5.14% 0.00% 24.31%
    12.41% 0.00% 31.10%

    CAL: Line that connects all por2olios that can be formed using a risky asset and a riskless asset

    Biocon
    0.36%
    2.49%
    4.84%
    7.49%
    10.67%
    14.95%
    19.69%
    19.41%
    19.15%
    18.71%
    18.24%
    17.53%
    16.39%

    CAPM Expected Return

    RIL
    TATA
    SBI
    Infosys
    Biocon
    Nifty
    Portfolio

    Risk Free Rate


    5.50%
    5.50%
    5.50%
    5.50%
    5.50%
    5.50%
    5.50%

    Beta
    0.95
    1.06
    1.30
    0.86
    0.51
    1.00
    0.94

    Market
    Return
    19.64%
    19.64%
    19.64%
    19.64%
    19.64%
    19.64%
    19.64%

    Risk
    Premium
    14.14%
    14.14%
    14.14%
    14.14%
    14.14%
    14.14%
    14.14%

    Expected
    Return
    18.98%
    20.53%
    23.86%
    17.70%
    12.77%
    19.64%
    18.77%

    Actual Actual Return Return Expected Return


    85.55%
    66.57%
    -46.16%
    -66.69%
    61.70%
    37.84%
    -25.98%
    -43.69%
    46.69%
    33.93%
    19.64%
    0.00%
    11.94%
    -6.82%

    Capital Market Line


    Market
    Risk Free Asset
    Weights
    Weighted Asset
    Return Risk Return Risk Market
    RF
    Return
    Risk
    0.07% 1.42% 0.01%
    0%
    0%
    100%
    0.01% 0.00%
    0.07% 1.42% 0.01%
    0%
    10%
    90%
    0.02% 0.14%
    0.07% 1.42% 0.01%
    0%
    20%
    80%
    0.02% 0.28%
    0.07% 1.42% 0.01%
    0%
    30%
    70%
    0.03% 0.42%
    0.07% 1.42% 0.01%
    0%
    40%
    60%
    0.03% 0.57%
    0.07% 1.42% 0.01%
    0%
    50%
    50%
    0.04% 0.71%
    0.07% 1.42% 0.01%
    0%
    60%
    40%
    0.05% 0.85%
    0.07% 1.42% 0.01%
    0%
    70%
    30%
    0.05% 0.99%
    0.07% 1.42% 0.01%
    0%
    80%
    20%
    0.06% 1.13%
    0.07% 1.42% 0.01%
    0%
    90%
    10%
    0.06% 1.27%
    0.07% 1.42% 0.01%
    0%
    100%
    0%
    0.07% 1.42%
    0.07% 1.42% 0.01%
    0%
    110%
    -10% 0.08%
    1.56%
    0.07% 1.42% 0.01%
    0%
    120%
    -20% 0.08%
    1.70%
    0.07% 1.42% 0.01%
    0%
    130%
    -30% 0.09%
    1.84%
    0.07% 1.42% 0.01%
    0%
    140%
    -40% 0.09%
    1.98%
    0.07% 1.42% 0.01%
    0%
    150%
    -50% 0.10%
    2.12%
    0.07% 1.42% 0.01%
    0%
    160%
    -60% 0.11%
    2.26%
    0.07% 1.42% 0.01%
    0%
    170%
    -70% 0.11%
    2.41%
    0.07% 1.42% 0.01%
    0%
    180%
    -80% 0.12%
    2.55%
    0.07% 1.42% 0.01%
    0%
    190%
    -90% 0.12%
    2.69%
    0.07% 1.42% 0.01%
    0%
    200% -100% 0.13%
    2.83%

    Capital Market Line


    Return
    0.14%
    0.12%
    0.10%
    0.08%
    Return

    0.06%
    0.04%
    0.02%
    0.00%
    0.00%

    SD
    Return

    0.50%

    1.00%

    1.50%

    2.00%

    2.50%

    RIL
    1.624%
    0.25%

    TATA
    2.124%
    -0.25%

    SBI
    Infosys Biocon
    2.456% 1.745% 2.535%
    0.19% -0.12%
    0.15%

    3.00%

    Nifty Portfolio
    1.415% 1.500%
    0.07%
    0.05%

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