AD1 - FIN 5001 Project
AD1 - FIN 5001 Project
AD1 - FIN 5001 Project
GROUP AD1
Analysis
Co-Relation Matrix and Co-Variance Matrix
Correlation Matrix As per the co-relation matrix, we see that the
Nifty 500 JSW Energy IOC Astral Poly Nestle Adani Ports pairs- IOC and JSW Energy and IOC and Adani
Nifty 500 1.00 0.02 0.29 0.44 0.42 0.05 Ports have the negative values for correlation
JSW Energy 1.00 -0.01 0.01 0.05 0.26 and covariances. This means that these stocks
IOC 1.00 0.10 0.07 -0.01 will have the least risk in terms of a two asset
Astral Poly 1.00 0.19 0.02 portfolio.
Nestle 1.00 0.02
However, most of the other pairs also have
Adani Ports 1.00
significantly low values for correlation and
covariance. Hence, instead of selecting two stocks on the basis of the above matrices, we proceed with
analysing the returns of the stocks.
Variance- Covariance Matrix
Nifty 500 JSW Energy IOC Astral Poly Nestle Adani Ports
Nifty 500 0.000129 0.000007 0.000116 0.000125 0.000074 0.000013
JSW Energy 0.000704 -0.000012 0.000009 0.000019 0.000156
IOC 0.001219 0.000088 0.000039 -0.000009
Astral Poly 0.000623 0.000072 0.000010
Nestle 0.000236 0.000005
Adani Ports 0.000524
Calculation of Beta
Beta represents the market volatility of a stock. It is an important measure of systematic risk of a
particular stock.
Beta Calculation
Nifty 500 JSW Energy IOC Astral Poly Nestle Adani Ports
Mean 0.06% 0.18% 0.23% 0.17% 0.11% 0.09%
Variance 0.03174 0.17255 0.29894 0.15273 0.05788 0.12840
Standard Deviation 17.82% 41.54% 54.68% 39.08% 24.06% 35.83%
BETA 1.00 0.05 0.90 0.97 0.57 0.10
Calculating CAGR
Compounded Annual Growth Rate
Nifty 500 JSW Energy IOC Astral Poly Nestle Adani Ports
Start Price ₹ 8,053.15 ₹ 58.66 ₹ 62.40 ₹ 448.58 ₹ 6,060.22 ₹ 333.05
Mean Returns 0.06% 0.18% 0.23% 0.17% 0.11% 0.09%
CAGR 24.34% 89.50% 135.53% 86.43% 50.76% 41.21%
This above formula is used to calculate the expected returns on stocks using the Capital Asset Pricing
Model.
80.00%
60.00%
40.00%
20.00%
0.00%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%
Portfolio Risk
On the basis of above results, we select IOC (45%) and Astral Poly (55%) as our two-asset portfolio.
Portfolio 5 Portfolio 5
Co-Variance 0.00009
Here r i is the expected rate of return; r m is the Market return and r f is the risk-free return
Portfolio 5 Portfolio 5
IOC Astral Poly IOC 45.00%
Weights
135.53 Astral Poly 55.00%
Portfolio Return % 86.43% Expected Returns 108.53%
Beta 0.90 0.97 Risk 32.68%
Variance 0.30 0.15 Sharpe Ratio 3.1217
Standard Expected Returns (CAPM) 23.20%
Deviation 0.55 0.39 Alpha 85.32%
Co-Variance 0.00009
Market Return 24.34%
Market STDDEV 17.82%
Risk Free Return 6.518%