Part B2: Discuss how to change the portfolio positions to minimizing the portfolio

The most important insight we get is that in a diversified portfolio, the contribution to portfolio risk of a particular security will depend on the covariance of that security’s return with those of other securities.

* Test for recoverability — If indicators are present, perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question to their carrying amounts (as a reminder, entities cannot record an impairment for a held and used asset unless the asset first fails this recoverability test).

The idea of “risk” is used in many fields and industries. There has been large efforts made towards the understanding of risk. Since, risk varies so much depending on the field of study, the need for learning about it is warranted. As can be imagined, the importance of risk in a market economy is crucial. In the 1990s, JP Morgan made the Value at Risk (VaR) a central component of its work efforts (Cecilia-Nicoleta, Anne-Marie, & Carmen-Maria, 2011).

“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”

Quantitative risk analysis uses percentages formulas and monetary values. The most commonly known and understood formulas are the single loss expectancy and the annualized loss expectancy methods.

The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

There are two main types of risk management assessments. They are qualitative and quantitative methodologies. With the qualitative methodology, a relative values are used to determine the probability and impact of a risk (Gibson, 2011). This type of information can be collected quickly. A quantitative risk assessment is used to estimate how much money would be lost should a vulnerability be exploited (Vanderberg, n.d.). With the quantitative methodology, actual dollar values are used. It can take a time to gather this type of data. Once the data is gathered, however, a math formula is used to determine the priority of risks and in turn show the results of controls (Gibson, 2011).

Consequently, the report will further elaborate on the approach behind variance analysis and to achieve a good result, an instance study on London Plc stand costing and actual expenses will be cited. Furthermore, it will demonstrate the drawbacks of using this approach and the reasons why it is almost impractical for several companies.

if the investor adds more and more randomly-selected stocks to the portfolio, the risk will be lower, because as you can see from the graph, with the number of stock added into the market, the portfolio standard deviation is reducing gradually and because portfolio standard deviation is a tool to measure risk, so the risk is reducing at the same time.

ASC 350-20-35-9 The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.

For example, in the building alterations, the tasks and the cost could be outlined with a quantitative modeling method. As well as a qualitative method, that includes a matrix, which will assist in developing risk responses that will be effective in mitigating possible risk. When a part was needed for a project deciding if it would be more economical to purchase or make the part. When presented with numerical data with cost, life cycle, and maintenance cost for up keep on two or more products that achieve the same goal. A risk management plan could be used to help access and handle project related risks. As for the risk tree, it could be used to help the project team decide on what the best option is for a task by giving a visual representation of the if then relationships in terms of

The CIO has asked to change the VaR model, a valuing risk model which a quantification of the short-term market risk of its investments, prior to the incident which later on were found to have errors which helped hide the true volatility and risk of these positions. In addition to that, it has been accepted that JP Morgan’s did not understand the risk associated with the position due to its complexity and larger portfolio base. It is best if stringent measurement could be taken by the company when dealing in such positions.

The project is based on analyzing the 40 scrip’s and preparing a portfolio of 20 scrip’s and evaluates the performance of portfolio for the next one year. The sample size is 40 companies stocks. The company stocks are chosen based on their nature 1) Aggressive in nature (β>1).2) Conservative in nature (β<1) and 3).Balanced in nature (β=1).The portfolio performance is compared with various mutual funds and with market to pullout or adds some companies according to their performances. The virtual money investing in the portfolio is 100 Crores.

The risk parameters for VaR calculations, which lead to, the market risk was therefore calculated on internal data rather than general market data and the risk weight could be based on internal data and allowed for more inputs. The internal model offered a more nuanced picture of the risk profile, which took better account of the individual bank’s circumstances. Through the internal models the banks could achieve lower capital requirement than the standard models, but the internal models was expensive to set up and maintain, so in praxis only the large banks used them (BCBS, 2009 and Moosa 2010).

Concept of risk, risk assessment, risk management and how uncertainty affects the process will be discussed.