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Security Analysis and Portfolio Management
Future behavior of stock prices, expected returns and risk associated
with it.
Investment objectives
Financial
Safety
Profitability
Liquidity
Personal
Family commitments
Educational
Status
Investment Sources
PFShares
PPFFD
Insurancecommo
ditiesGDRADRMF
CP
Real estate
Debentures
Postal savings
Security and Portfolio analysis(Measurement of Risk and Return)
• Variability of its rate of return• Quantify and measure risk
Variance(σ 2 or S2 or SD2 ):• Difference between actual return and mean or
expected value of security or portfolio
Standard deviation σ or S:• It measure the risk involved in security or
portfolio.• Higher the S.D., higher the investment risk.• It is originally denoted by σ, the Greek letter
Sigma or S
Beta (β):• It measure the performance of particular
security or portfolio in relation to the general movement of the market.
• If security or portfolio has a beta of 1, its rise and fall corresponds exactly with the market.
• With beta of 2, its rise or fall is double.• β=
• Mr. rajesh a fund manager produced the following returns for the last five years on his portfolio. Rates of return on sensex are also given .
• Did he do better or worse than sensex?
Year Return on portfolio (%)
Return on Sensex (%)
2003-04 6 12
2004-05 48 40
2005-06 -15 -6
2006-07 7 20
2007-08 11 3
Year X(i) Mean X(i) X (i) – Mean X (i)
[X (i) – Mean X (i)] 2
2003-04 6 11.4 - 5.4 29.16
2004-05 48 11.4 36.6 1039.56
2005-06 -15 11.4 - 20.4 696.96
2006-07 7 11.4 - 4.4 19.36
2007-08 11 11.4 - 0.4 0.16
∑ 57 2085.20
• Mean (average) of Return on Portfolio : 57/5= 11.4
• Standard deviation σ or S: 20.42
Year X(i) Mean X(i) X (i) – Mean X (i)
[X (i) – Mean X (i)] 2
2003-04 12 13.8 -1.8 3.24
2004-05 40 13.8 26.2 686.44
2005-06 -6 13.8 19.8 392.04
2006-07 20 13.8 6.2 38.44
2007-08 3 13.8 -10.8 116.64
∑ 69 1236.80
• Mean (average) of Return on sensex = 69/5= 13.8
• Standard deviation σ or S: 15.72
How volatile is security with reference to Nifty?
Year Return on Security Return on Nifty
2005-06 10 12
2006-07 12 10
2007-08 13 10
2008-09 10 12
2010-11 8 15
2011-12 11 14
2012-13 16 20
2013-14 12 15
2014-15 18 20
2014-15 20 22
