SEMINAR ON PORTFOLIO ANALYSIS

PRESENTED TO:

PROF. B. NAGARAJU.

DOS IN COMMERCE.

MANASAGANGOTHRI.

MYSORE.

CONTENTS:• INTRODUCTION.

• MEANING AND DEFINITION.

• DIVERSIFICATION.

• ASSET ALLOCATION.

• INDIVIDUAL VARIANCE.

• RISK ANALYSIS AND TYPES.

• SYSTEMATIC RISK.

• UNSYSTEMATIC RISK.

• RISK MANGEMENT.

• ADVANTAGES AND DISADVANTAGES.

• CONCLUSION.

• REFERENCE.

INTRODUCTION:

Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.

The term portfolio refers to any collection of financial assets such as stocks, bonds, and cash. Portfolios may be held by individual investors and/or managed by financial professionals, hedge funds, banks and other financial institutions. It is a generally accepted principle that a portfolio is designed according to the investor's risk tolerance, time frame and investment objectives.

A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals. 04/11/23

MEANING AND DEFINTION:

Portfolio analysis describes an evaluative process of reviewing the holdings of an entire investment portfolio. Each asset much be evaluated for performance. Asset allocation, diversification, variance, and the portfolio beta test portfolio strength. Portfolio analysis also investigates the risks associated with the present portfolio composition. Mitigating risk is an indispensable component of portfolio management.

Portfolio analysis is the process of looking at every investment held within a portfolio and evaluating how it affects the overall performance. Portfolio analysis seeks to determine the variance of each security, the overall beta of the portfolio, the amount of diversification and the asset allocation within the portfolio. The analysis seeks to understand the risks associated with the current composition of the portfolio and identify ways to mitigate the identified risks.04/11/23

DIVERSIFICATION:

Modern portfolio theory relies on diversification to minimize individual security risk in a portfolio. The idea is that by holding a large number of different securities, no individual security can seriously affect the performance of the portfolio and the investor is left with only systemic risk, which is the risk that the entire sector or market will decline. It is possible to hedge against systemic risk, but it cannot be fully mitigated without giving up a significant portion of the potential returns.

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ASSET ALLOCATION:

Asset allocation is the second part of reducing risk. An investor can hold 200 different securities in his portfolio, but if they are all in one sector, he will be seriously exposed to the systemic risk of the individual sector.To mitigate the systemic risk of a sector, investors look to allocate different portions of their portfolio into different sectors and asset classes. For example, a portfolio might be composed of 10 percent blue chip stocks, 10 percent mid-cap stocks, 10 percent small-cap stocks, 10 percent international stocks, 10 percent in real estate, 10 percent in gold, 10 percent in corporate bonds, 10 percent in government bonds, 10 percent in oil and 10 percent in cash.By allocating funds among different asset classes, the investor is going to experience less volatility caused by the varying performance of the investments in each class.

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INDIVIDUAL VARIACE:

After asset allocation and diversification are determined, the variance of each security is examined. Variance is the rate at which the value of an investment fluctuates around an average. The greater the variance, the greater the risk associated with the investment.

Beta

Using an investment's variance, its beta can be calculated. Beta is a useful measure of how much variance exists for an individual security compared to an existing portfolio or benchmark. An investment's beta is an easy way to see if adding the security to an existing portfolio will reduce the risk associated with the portfolio or will increase the risk.A beta of less than one will lower the risk, while a beta of greater than one will increase the risk.

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RISK ANALYSIS:

Risk analysis refers to the uncertainty of forecasted future cash flows streams, variance of portfolio/stock returns, statistical analysis to determine the probability of a project's success or failure, and possible future economic states. Risk analysts often work in tandem with forecasting professionals to minimize future negative unforeseen effects.

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SYSTEMATIC RISK:

Systematic risk is due to the influence of external factors on an organization. Such factors are normally uncontrollable from an organization's point of view.

It is a macro in nature as it affects a large number of organizations operating under a similar stream or same domain. It cannot be planned by the organization.

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UNSYSTEMATIC RISK:

Unsystematic risk is due to the influence of internal factors prevailing within an organization. Such factors are normally controllable from an organization's point of view.

It is a micro in nature as it affects only a particular organization. It can be planned, so that necessary actions can be taken by the organization to mitigate (reduce the effect of) the risk.

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RISK MANAGEMENT:

In risk management, a prioritization process is followed whereby the risks with the greatest loss (or impact) and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order. In practice the process of assessing overall risk can be difficult, and balancing resources used to mitigate between risks with a high probability of occurrence but lower loss versus a risk with high loss but lower probability of occurrence can often be mishandled.

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ADVANTAGES AND DISADVANTAGES:

Portfolio analysis offers the following advantages:

1. It encourages management to evaluate each of the organization's businesses individually and to set objectives and allocate resources for each.

2. It stimulates the use of externally oriented data to supplement management's intuitive judgment.

3. It raises the issue of cash flow availability for use in expansion and growth.

Portfolio analysis does, however, have some limitations.

 

1. It is not easy to define product/market segments.

2. It provides an illusion of scientific rigor when some subjective judgments are involved.

Thank You

REFERENCE:• www.google.com

• www.investopedia.com

• www.wikipedia.com

SUBMITTED BY:BHARGAVI. B.1st YEAR MFM.

MANASAGANGOTHRI.UNIVERSITY OF MYSORE.

MYSORE.