Risk-Return analysis of Portfolio (Securities and Commodities)

Presented a paper on “Risk-Return analysis of Portfolio (Securities and Commodities)” at the State-level Conference on Contemporary issues in Accounting, Finance and Management - 25th August 2007, organized by S. M. Patel Institute of Commerce (Gujarat Law Society) at Ahmedabad.

Abstract:

In recent time people have number of investment avenues available for investment. But the important decision is to select optimum combination out of them to generate maximum return with minimizing risk.

In this paper Markowitz Model is used to construct a portfolio which can generate optimum return with minimum level of risk. This model is applied on selected scripts and commodities to construct portfolios. In securities BHEL, Reliance and Satyam Computers were selected; whereas from commodities Gold, Silver and Zinc have been selected.

The result of analysis tells following risk and return position for specific period of time i.e. 31^st May 2007 to 24^th July 2007 for different scripts and commodities.

Script / Commodity	Mean (%) R (Expected Return)	Standard Deviation σ (Risk)	Rank
Reliance	0.08	1.06	3
Satyam	-0.04	1.73	6
BHEL	0.73	2.21	1
Zinc	0.08	1.79	4
Gold	0.07	0.61	2
Silver	0.01	1.16	5

As BHEL from selected script and Gold from commodities appears good on the basis of their risk-return relationship, these two instruments were selected for portfolio construction. Following probable alternatives has been derived on the basis of their risk return relationships for suggestion in portfolio preparation out of selected avenues.

Portfolio	Proportion of Gold	Proportion of BHEL	Return of Portfolio	Risk of Portfolio
A	0.1	0.9	0.14	0.64
B	0.3	0.7	0.27	0.87
C	0.5	0.5	0.40	1.21
D	0.7	0.3	0.53	1.60
E	0.9	0.1	0.66	2.00

(Note: Return is calculated for specific period and not annualised.)

From above table one can select any of the portfolios according to his risk averseness or expected return.