MODULE III

SAPM
BY SUDESHNA DUTTA
ASST PROFESSOR
FUNDAMENTAL ANALYSIS

 Equity shares have an economic worth which is based on existing and expected
earnings capacity.
 Fundamental analysis attempts to find out the fair value or intrinsic value of
securities so that the investors can decide to buy or not to buy the securities at the
current market price.
 The basic premise is that in the long run, the market price tends to move towards its
fair or intrinsic value.
 Small investors sometimes take narrow approach to fundamental analysis which is
called bottom-up-approach.
 However, a broader framework for fundamental analysis is known as ‘topdown-
approach’ or Economic-Industry-Company (EIC) Approach.

BY SUDESHNA DUTTA, ASST PROF,BIITM

 FUNDAMENTAL ANALYSIS
Fundamental analysis is a method that attempts to predict the intrinsic value or
True value of an investment.

Fundamental Analysis is based on the theory that the market price of an asset
tends to move towards its 'real value' or 'intrinsic value’.

In fundamental analysis an investor makes an attempt to study everything that can

affect the share price.

Investor can look for information about the economy, industry and the company
so that he can find a right security to invest in.

The ultimate aim of doing fundamental analysis is to find a value that an investor
can compare with the security’s current price and on basis of his comparison he
finally decides whether to buy an underpriced security or to sell an overpriced
security.

BY SUDESHNA DUTTA, ASST PROF,BIITM

 WHY TO STUDY FUNDAMENTAL ANALYSIS
Before understanding about how to do fundamental analysis one should
understand why he should do fundamental analysis. The answer to this
question lies in the fact the all of us are rational consumers.
For an example many times when we are at a shop to buy a product we
often say to the shopkeeper to tell us the final price of the product at
which he is ready to sell as the price told by him earlier are not according
to the worth of the product for us.

The same concept applies here. When we buy a share we are offered with
various shares from various companies. Here again the question arises
that whether the market price of share is a true reflector of its actual
worth or not.

Thus fundamental analysis helps hereby doing fundamental analysis one

can calculate the intrinsic value

BY SUDESHNA DUTTA, ASST PROF,BIITM

FUNDAMENTAL ANALYSIS

BY SUDESHNA DUTTA, ASST PROF,BIITM

 ECONOMIC ANALYSIS
Economic Analysis relates to the analysis of the economy.
This related to study about the economy in details and
analysis whether economic conditions are favourable for the
companies to prosper or not.
Analysts always try to find out whether the economic
development is conducive for the growth of the company.
An investor in a security market can give prediction about the
future of share price of a company on the basis of the study of
forces affecting economic environment of the country.

BY SUDESHNA DUTTA, ASST PROF,BIITM

 FACTORS OF ECONOMIC ANALYSIS
For the Economic Analysis, the Macro Economic Factors are studied to
know about the condition of an economy or performance of the security
market of any country.

Some points to be considered

GDP of the country Interest rates

Performance of security market Supply and demand of money

Inflation rate Government borrowings and loans

Taxation policy and rates Consumer and goods market

Foreign Direct Investment Balance of payments etc.

The economy is studied to determine if overall

conditions are good for the stock market. 
BY SUDESHNA DUTTA, ASST PROF,BIITM
 MAJOR TOOLS OF ECONOMIC ANALYSIS
 Gross Domestic Product

 Fiscal Policy

 Monetary Policy

 Saving Rate

 Trade Deficit

 Exchange Rate

Trade Deficit
BY SUDESHNA DUTTA, ASST PROF,BIITM
VARIABLES AND TECHNIQUES FOR ECONOMIC
ANALYSIS
 Global Economic scenario and confidence
 General Economic sentiments and confidence in the economy
 Economic and political stability
SOURCES OF INFORMATION FOR ECONOMIC ANALYSIS
 Reserve bank of India, monthly bulletin.
 Reserve bank of India, Annual Reports.
 RBI, Reports on currency and finance, different issues.
 Statistics on Indian Economy, RBI.
 Centre for Monitoring of Indian Economy (CMIE), monthly reviews and
annual reports
 Economic surveys, Government of India, different issues
 Public enterprise survey, GOI

BY SUDESHNA DUTTA, ASST PROF,BIITM

IMPORTANCE OF INDUSTRY
ANALYSIS
Firms in each different industry typically experience similar
levels of risk and similar rates of returns. As such, industry
analysis can also be useful in knowing the investment
worthiness of a firm.
Mediocre stocks in a growth industry usually outperform the
best stocks in a stagnant industry. This points out the need for
knowing not only company prospects but also industry
prospects

BY SUDESHNA DUTTA, ASST PROF,BIITM

CLASSIFICATION OF INDUSTRIES
PRODUCT LINE WISE : Automobiles, steel, cement, textiles
etc.
SECTOR WISE : Agriculture, mining, construction,
manufacturing, IT, services, transportation etc.
BUSINESS CYCLE WISE: Growth , cyclical and defensive

BY SUDESHNA DUTTA, ASST PROF,BIITM

KEY INDICATORS IN INDUSTRY
ANALYSIS
The analysts is free to choose his or her own indicators for analyzing the prospect
of an Industry. However , many commonly adopt the following indicators.
(A) Performance factors like:
Past sales at least for three years
Future sales for at least two years
Past earnings at least for three years
Future earnings for at least two years
(B)Environment factors like:
Attitude of government
Competitive conditions
Technological progress
(C) Industry life cycle (pioneering/growing/stagnation/decline)
(D ) SWOT analysis for the industry

BY SUDESHNA DUTTA, ASST PROF,BIITM

INDUSTRY ANALYSIS
 EMERGING STAGE GROWTH STAGE
Conditions Conditions
• Highest Investment
• Lower and Uncertain Returns • Decreased capital needs and investment
• Companies are first movers and fast • Increased Returns (High returns)
followers who have to generate capital • Demand is established
internally or attract outside capital usually  Increase in market share
from venture capitalists
Examples
• Unproven technology, and yet not
• Automobile
standardized
• Information Technology
Examples
• Mobile Telephony
• Biotech
• Pharmaceutical
• Bioinformatics
• Primary Education
• CyberMedia
• Drug Development
• Entertainment
• Green Products

BY SUDESHNA DUTTA, ASST PROF,BIITM

INDUSTRY ANALYSIS
 MATURITY STAGE
DECLINE STAGE
Conditions
Conditions
• Saturated with more companies
Decrease market market share
• Increased competition
Examples
• There are few conditions for the Industry Life Cycle
• Agriculture
Analysis of this stage which is given below.
• Mining
Examples
• Tobacco (e.g. Beedi)
• Manufacturing
• Print Media
• Textile
• Cotton textiles
• Steel
• Oil and gas business
• BPO (Business Process Outsourcing)

BY SUDESHNA DUTTA, ASST PROF,BIITM

SOME RELEVANT QUESTIONS FOR
INDUSTRY ANALYSIS
 Are the sales of industry growing in relation to the growth in Gross
National product( GNP) ?
 What is overall return on investment (ROI) ?
 What is the cost structure of the industry ?
 Is the industry in a stable position ? Does the success or failure depend
upon any singlecritical factor ?
 What is the impact of taxation upon the industry ?
 Are there any statutory controls in matters of raw materials prices,
distribution etc ?
 What is the industrial relations scenario of the industry ?
 Is the industry highly competitive ? Is it dominated by one or two major
companies ?
 Are they Indian or foreign ? Is there sufficient export potential ?Are
international pricesBYcomparable to domestic prices ?
SUDESHNA DUTTA, ASST PROF,BIITM
COMPANY ANALYSIS
The basic objective of company analysis is to identify better performing
companies in an industry. Various steps involved are as follows:
1. Analysis of the management of the company to evaluate its trust-
worthiness and its capacity and efficiency to counter any untoward
situation in the industry.
2. Analysis of the financial performance of the company to forecast the
future expected earnings capacity.
3. Evaluation of long term vision and strategies of the company in terms of
the organizational strength and resources of the company
4. Analysis of key success factor for a particular industry and the strength
of the particular firm in respect of that factor

BY SUDESHNA DUTTA, ASST PROF,BIITM

COMPANY ANALYSIS
 The ultimate objectives of company analysis are:
1. To analyze the past as well as present earnings to forecast the future earnings of
thecompany.
2. To find out the fair value (intrinsic value) of the share.
ANALYZING COMPANY’S EARNINGS WITH THE HELP OF FOLLOWING
RATIOS:
 EBIT/PBT/PAT
 RETURN ON EQUITY(ROE)
 EARNINGS PER SHARE (EPS)
 DIVIDEND PER SHARE(DPS)
 DIVIDEND PAYOUT RATIO( DP RATIO)
 PRICE EARNING RATIO ( PE RATIO)
 MARKET TO BOOK VALUE RATIO (PB RATIO) YIELD

BY SUDESHNA DUTTA, ASST PROF,BIITM

 Liquidity Ratios
Liquidity ratios provide information about a firm's ability to meet its short-term financial
obligations. They are of particular interest to those extending short-term credit to the firm.
Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the
quick ratio.

Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may
prefer a lower current ratio so that more of the firm's assets are working to grow the
business. One drawback of the current ratio is that inventory may include many items that
are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio
is an alternative measure of liquidity that does not include inventory in the current assets.
The quick ratio is defined as follows:

BY SUDESHNA DUTTA, ASST PROF,BIITM

Asset Turnover Ratios:
 Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They
sometimes are referred to as efficiency ratios, asset utilization ratios, or asset
management ratios. Two commonly used asset turnover ratios are receivables
turnover and inventory turnover.
 Receivables turnover is an indication of how quickly the firm collects its accounts
receivables and is defined as follows:

 Another major asset turnover ratio is inventory turnover. It is the cost of goods sold
in a time period divided by the average inventory level during that period

BY SUDESHNA DUTTA, ASST PROF,BIITM

Profitability Ratios
 Profitability ratios offer several different measures of the success of the firm at
generating profits.
 The gross profit margin is a measure of the gross profit earned on sales. The gross
profit margin considers the firm's cost of goods sold, but does not include other costs. It
is defined as follows

 Return on assets is a measure of how effectively the firm's assets are being used to
generate profits. It is defined as:

 Return on equity is the bottom line measure for the shareholders, measuring the profits
earned for each dollar invested in the firm's stock. Return on equity is defined as
follows

BY SUDESHNA DUTTA, ASST PROF,BIITM

Stock market
One of the funny things
about the stock market
is that every time one man
buys, another sells,
and both think they are
astute..
……– William Feather

BY SUDESHNA DUTTA, ASST PROF,BIITM

TECHNICAL ANALYSIS
 Technical analysis is a process used to examine and predict the future prices of
securities by looking at things like price movement, charts, trends, trading
volume and other factors.
 Unlike fundamental analysis, technical analysis focuses on trading signals to
delineate good investments and trading opportunities by examining an
investment's trends through its trading data and other statistical elements.
 As a general rule, technical analysis prizes the current or past price of a security
as the best indicator of the future price of that security.
 Technical analysis relies heavily on financial charts, data and statistics to
uncover an investment's strengths or possible weaknesses and forecast trends in
order to help analysts and investors decide if a security is viable or not, and for
what action.
 A technical analyst believe that share price are determined by the demand and
supply forces operating in the market.
BY SUDESHNA DUTTA, ASST PROF,BIITM
DOW THEORY
Whatever is generally being accepted today as technical analysis has its root
in the Dow Theory. The theory is so called because it was formulated by
Charles H. Dow who was the editor of the WALL STREET JOURNAL in USA.
Charles Dow formulated a hypothesis that the stock market does not move
on a random basis but is influenced by three distinct cyclical trend that
guide its direction.
An important part of Dow Theory is distinguishing the overall direction of
the market. To do this, the Theory uses trend analysis.
Dow Theory identifies three trends within the market: primary, secondary
and minor. A primary trend is the largest trend lasting for more than a year,
while a secondary trend is an intermediate trend that lasts three weeks to
three months and is often associated with a movement against the primary
trend. Finally, the minor trend often lasts less than three weeks and is
associated with the movements in the intermediate trend.

BY SUDESHNA DUTTA, ASST PROF,BIITM

Primary Trend
 In Dow Theory, the primary trend is the major trend of the market, which makes it
the most important one to determine. This is because the overriding trend is the one
that affects the movements in stock prices. The primary trend will also impact the
secondary and minor trends within the market. Dow determined that a primary trend
will generally last between one and three years but could vary in some instances.
Regardless of trend length, the primary trend remains in effect until there is a
reverse trend.
 When reviewing trends, one of the most difficult things to determine is how long the
price movement within a primary trend will last before it reverses. The most
important aspect is to identify the direction of this trend and to trade with it, and not
against it, until the weight of evidence suggests that the primary trend has reversed

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Secondary, or Intermediate Trend
 In Dow Theory, a primary trend is the main direction in which
the market is moving. Conversely, a secondary trend moves in
the opposite direction of the primary trend, or as a correction
 For example, an upward primary trend will be composed of
secondary downward trends. This is the movement from a
consecutively higher high to a consecutively lower high. In a
primary downward trend the secondary trend will be an upward
move, or a rally. This is the movement from a consecutively lower
low to a consecutively higher low. Another important
characteristic of a secondary trend is that its moves are often
more volatile than those of the primary move. to the primary
trend.

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
BY SUDESHNA DUTTA, ASST PROF,BIITM
 Minor Trend:
The last of the three trend types in Dow Theory is the minor trend,
which is defined as a market movement lasting less than three weeks.
The minor trend is generally the corrective moves within a secondary
move, or those moves that go against the direction of the secondary
trend. Due to its short-term nature and the longer-term focus of Dow
Theory, the minor trend is not of major concern to Dow Theory
followers. But this doesn't mean it is completely irrelevant; the minor
trend is watched with the large picture in mind, as these short-term
price movements are a part of both the primary and secondary trends.
Most proponents of Dow Theory focus their attention on the primary
and secondary trends, as minor trends tend to include a considerable
amount of noise. If too much focus is placed on minor trends, it can to
lead to irrational trading, as traders get distracted by short-term
volatility and lose sight of the bigger picture

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Assumptions
1. The market value of any good or service is determined
solely by the interaction of supply and demand
2. Supply and demand are governed by numerous
factors, both rational and irrational
3. Disregarding minor fluctuations, the prices for individual
securities and the overall value of the market tend to move
in trends, which persist for appreciable lengths of time.
The primary trend cannot be manipulated
4. Prevailing trends change in reaction to shifts in supply and
demand relationships and these shifts can be detected in
the action of the market
BY SUDESHNA DUTTA, ASST PROF,BIITM
Chart Patterns and Analysis
As the bread and butter of technical analysis, chart patterns are one of the main ways
analysts examine and predict where a stock or security will trade down the road.
 Line chart
It is the simplest price chart , in this chart the closing prices of a share are plotted on
the XY graph on a day to day basis. The closing prices of each day would be
represented by appoint on the XY graph. All the line chart would be connected be
connected by a straight ;line which would indicated the trend in the market

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Bar Chart
One of the basic tools of technical analysis is the bar chart. Bar
charts are also referred to as open-high-low-close (OHLC)
charts. They are comprised of a series of vertical lines that
indicate the price range during that Time Frame. Bar charts
enable traders to discover patterns more easily as they take into
account all the prices, open, high, low and close.
It is perhaps the most popular chart used by technical analysts.
In this chart the highest price , the lowest price and the closing
price of each day are plotted on day to day basis, the opening
price of the day marked as a hassh on the left side of the bar.
The top is the highest price and the bottom represents the
lowest price.
BY SUDESHNA DUTTA, ASST PROF,BIITM
BY SUDESHNA DUTTA, ASST PROF,BIITM
Japanese Candlestick or Candlestick Chart:
 Another kind of chart used in the technical analysis is the candlestick chart, so-called because
the main component of the chart which represents prices looks like a candlestick, with a thick
„body‟ and usually, a line extending above and below it, called the upper shadow and lower
shadow, respectively
 The top of the upper shadow represents the high price, while the bottom of the lower shadow
shows the low price. Patterns also shows the highest price and the lowest price on day to day
basis.
 The opening and the closing price of the day would fall between the highest and lowest price
would be represented by a rectangle so that the price bar chart looks like a candlestick.
 There are mainly three types of candlestick :white, black, and doji
 A white candle stick is used to represent a situation where the closing price of the day is
higher than the opening price.
 A black candlestick is used when the closing price of the day is lower than the opening price.
 A doji candlestick is the one where the opening price and the closing price of the day are the
same.

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Chart Patterns
When the price bar charts of several days are drawn close together , certain
pattern patterns emerge. These patterns are used by the technical analysts to
identify trend reversal and predict the future movement prices. The chart
patterns may be classified as support and resistance patterns, reversal patterns
and continuation patterns.
1. Support and Resistance
Support represents a price where demand for a stock is high enough to
typically prevent the price from dipping below that line. Conversely, resistance
represents the point where sellers of the stock will come in a dump their
shares, keeping the security from moving above a higher price
If a stock's price dips below its recent support line, that's bad news that could
indicate a bearish trend for the security. But if a stock breaks above its recent
resistance line, that typically means that the name is experiencing a bullish
trend.

BY SUDESHNA DUTTA, ASST PROF,BIITM

Support and Resistance

 In essence, support is the floor price of the stock supporting it to stay higher, while
resistance is the ceiling that's keeping the stock's price from going higher.
Examining where a stock's price currently sits between the support and resistance
lines is a major tool that technical analysts use to determine price trends. Because
stock prices tend to bounce between support and resistance lines, both are crucial to
predicting when a price might move or not (and in which direction).
 Support and resistance levels are extremely important in identifying trends and
when they might reverse. That's why they're one of technical analysis' key concepts.
 Breakout: Breakout is a point when the stock‟s price moves above resistance or
below support. It is a technical analysis term, used to indicate a rise in a stock‟s
price above its resistance level (such as its previous high price) or drop below its
support level (commonly the last lowest price.) The assumption is that the stock will
continue to move in the same direction following the breakout, which generates a
buy or sell signal.

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Reversal and Continuation in Stock Chart
Pattern
 Reversal and continuation are two types of patterns within this area of
technical analysis. A reversal pattern signals that a prior trend will
reverse upon completion of the pattern while a continuation pattern
signals that a trend will continue once the pattern is complete. These
patterns can be found over charts of any timeframe.
 There tend be general ideas and components to every chart pattern,
but unfortunately, there is no chart pattern that will tell you with
complete certainty in which direction a security is headed. This creates
some flexibility and deliberation as to what a good pattern looks like,
which is why charting is often seen as more of an art than an absolute
science

BY SUDESHNA DUTTA, ASST PROF,BIITM

Head and Shoulders Pattern:
 Head and shoulders pattern is a technical analysis term referring to a chart formation
in which a price exhibits three successive rallies, the second one being the highest.
Head and shoulders pattern is one of the most widely used and reliable chart
patterns in technical analysis

BY SUDESHNA DUTTA, ASST PROF,BIITM

Head and Shoulders Pattern
The first hump known as the left
shoulder is formed when the prices reach
the top under strong buying impulse
Then trading volume becomes less and
there is short downstard swing
This is followed by another higher
volume advance , which take the price to
a higher top known as a head.
This is followed by another less volume.
A third rally now occurs taking the price
down to a height but less than the head
called right shoulder.
A horizontal line joining the bottoms of
this formation is known as the neckline
After breaking the neckline the price is
expected to decline sharply.

BY SUDESHNA DUTTA, ASST PROF,BIITM

Inverse Head and Shoulder Formation
This pattern is the reverse of the head
and shoulder formation pattern,
It occurs at the end of the bear phase
and consists of three distinct bottoms.
The first bottom is the is the left
shoulder, then comes a lower bottom
which forms the head, followed by the
third bottom which is termed as right
shoulder .
The neckline is drawn by joining the
tops from which the head and the
right shoulder originates.
The inverse head and shoulder pattern
is also a reversal pattern indicative of
oncoming bullish phase.

BY SUDESHNA DUTTA, ASST PROF,BIITM

Continuation Pattern
Triangle Pattern
Triangles are known as continuation patterns, meaning the trend stalls out to gather
steam before the next breakout or breakdown. They are named triangles as the upper
and lower trend line eventually meet to form a tip and connecting the starting points of
both trend lines completes a triangle shape. The support trend line continues to close
the channel until the resistance price level breaks on heavy volume to resume the prior
trend again.

BY SUDESHNA DUTTA, ASST PROF,BIITM

Flags and Pennants
 Flag and Pennants are very common and reliable short term congestion patterns
formed between trends.
 Flag and pennant are considered to be strong continuation pattern. Flag and pennant
differs from each other in their shapes only, other than that they resemble each other
so much in their characteristic that the names flag and pennant are used
interchangeably.
 As the name suggest a flag is a rectangular in shape while a pennant is triangular in
shape. Flag/pennant gives the buyer very good opportunity to enter the trending
market as they represent very short pauses in trend
 They occur mid way between a sharp rise in price or steep fall in price.

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Elliot Wave Theory
Wave theory formulated by Ralph Elliot , known as the Elliot wave theory
A wave is a movement of the market price from one change in the direction to
the next change in the same direction.
The wave are the result of buying selling impulses emerging from the demand
and supply pressures on the market.
A movement in a particular direction can be represented by five waves.
Of these five waves , three waves are in the direction of the movement and are
termed as impulsive waves.
Two waves are against the direction of the movement and are termed as
corrective waves.
Waves 1, 3, and 5 are the impulsive waves and 2 and 4 are the corrective waves.
The Elliot wave theory is based on the principal that action is followed by
reaction. Although the wave is not perfect it has many limitations in its
practical use, it is accepted as on e of the tools of the technical ananlysis.

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
Mathematical Indicators
 Indicators: Indicators are calculations based on statistics like price and volume that
help confirm chart patterns and other trends. They're designed to create buy or sell
"signals" that help traders or analysts determine where to best enter or exit a trade
(and therefore make the most money). By examining these indicators, analysts are
able to better confirm a stock's price movements, and therefore the validity of
specific chart patterns that experts think they're seeing
 Simple Moving Average (SMA): A simple moving average (SMA) is an arithmetic
moving average calculated by adding recent closing prices and then dividing that by
the number of time periods in the calculation average. A simple, or arithmetic,
moving average is calculated by adding the closing price of the security for a
number of time periods and then dividing this total by that same number of periods.
Short-term averages respond quickly to changes in the price of the underlying, while
long-term averages are slow to react.
 The first total of 180.5 in column 3 is obtained by adding prices of the first five days
that is (33+35+37.5+36+39), then the value 187.5 is obtained as (180.5+40-33)

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BY SUDESHNA DUTTA, ASST PROF,BIITM
Exponential Moving Average – EMA
 Exponential Moving Average – EMA: An exponential moving average (EMA) is a
type of moving average (MA) that places a greater weight and significance on the
most recent data points. The exponential moving average is also referred to as the
exponentially weighted moving average. An exponentially weighted moving
average reacts more significantly to recent price changes than a simple moving
average (SMA), which applies an equal weight to all observations in the period

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ROC AND RSI
 Oscillators:
Some of the indicators are also "oscillators," or tools that functions by showing short-
term overbought or oversold conditions of stocks. Oscillators are typically bound in a
certain range (or between set levels or lines).
Rate of Change (ROC): The Rate-of-Change (ROC) indicator, which is also referred
to as simply Momentum, is a pure momentum oscillator. The ROC calculation
compares the current price with the price "n" periods ago. The plot forms an oscillator
that fluctuates above and below the zero line as the Rate-of-Change moves from
positive to negative. Like other momentum indicators, ROC has overbought and
oversold zones that may be adjusted according to market conditions. Remember, a
security can become oversold / overbought and remain oversold/overbought for an
extended period.
 Formula:
 ROC = [(Today’s Closing Price – Closing Price n periods ago) / Closing Price n
periods ago] x 100

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BY SUDESHNA DUTTA, ASST PROF,BIITM
Relative Strength Index (RSI):
The most commonly used time period for the calculations for RSI is 14 days .
The Relative Strength Index (RSI), is a momentum oscillator that measures
the speed and change of price movements. The RSI oscillates between zero
and 100. Traditionally the RSI is considered overbought when above 70 and
oversold when below 30. Signals can be generated by looking for divergences
and failure swings. RSI can also be used to identify the general trend.
RSI is considered overbought when above 70 and oversold when below 30.
These traditional levels can also be adjusted if necessary to better fit the
security. For example, if a security is repeatedly reaching the overbought
level of 70 you may want to adjust this level to 80. During strong trends, the
RSI may remain in overbought or oversold for extended periods.
Formula:
RSI = 100 – [100 / (1 + (Average of Upward Price Change / Average of
Downward Price Change))]

BY SUDESHNA DUTTA, ASST PROF,BIITM

BY SUDESHNA DUTTA, ASST PROF,BIITM
BY SUDESHNA DUTTA, ASST PROF,BIITM
Portfolio performance
Sharp’e Measure
Treyno’r Measure
Jensen’s Measure

BY SUDESHNA DUTTA, ASST PROF,BIITM

 Objectives of portfolio
Objectives of portfolio
Maximum return with minimum risk
Allocation of fund
Transfer of risk
 Combination of securities
 Professional service
 Expert advice

BY SUDESHNA DUTTA, ASST PROF,BIITM

Portfolio evaluation
To identify sources of strength or weakness
As Control mechanism
 For comparison

BY SUDESHNA DUTTA, ASST PROF,BIITM

Sharp’e Measure
It measures return relative to total risk
Risk ispredominately from systematic risk
=(𝑅 - Rf ) / σ
 𝑅 = Average return
Rf = Risk free return
 σ = standard deviation of

BY SUDESHNA DUTTA, ASST PROF,BIITM

Treynor’s Measure
Measurement of return relative to beta
 It ignores unsystematic rate
=(𝑅 - Rf ) / β
 𝑅 = Average return
 Rf = Risk free return
 β = beta

BY SUDESHNA DUTTA, ASST PROF,BIITM

Jensen’s Measure
It is based on CAPM
It express relationship between risk and return
Ki=Rf +β (Km – Rf)
Ki= Required or Expected rate of return on security
 Rf= Risk free rate of return
β= Beta of security
Km= Expected rate of return on market portfolio

BY SUDESHNA DUTTA, ASST PROF,BIITM