The Performance Of Portfolio Theory

Portfolio management is an important factor that determines the performance of the portfolio. To perform well in the portfolio, it is not only essential to develop personal investment strategies, but analyzing current financial trend is also vital. Stock Trak is an online portfolio simulation that allows students to try out different investment strategies, and also get a hand on experience in what the real market trading conditions are. By managing the portfolio, I have acquired some new knowledge of investment strategies and also become more familiar with the current market by following closely to the financial headlines.

These decisions may include selling and buying of stocks, bonds, futures, currencies and so on. Stocktrak.com helps to implement the investment decision process as it includes evaluation tools for securities being traded at stock market. The website provides graphical historical performance of stock prices and this graphical performance can be analyzed for making different investment decisions related to those stocks. This project will be investing the given specified amount in a portfolio. The portfolio investment will help to reduce the level of risk associated with investment. With the reduction in level of risk, the average return of portfolio investment will increase as compare to individual investments. Thus, portfolio investment is better option for investment as compare to individual

With Reference to this statement, describe, discuss and illustrate the principles of portfolio theory. Your essay should include coverage of the Markowitz Efficient Frontier and the Capital Market Line.

Harry Markowitz 1991, developed a theory of “Portfolio choice”, that allows the investors to examine the risk as per the expected returns. In modern World, this theory is known as Modern portfolio theory (MPT). It attempts to attain the best portfolio expected return for a predefined portfolio risk, or to minimise the risk for the predefined expected returns, by a careful choice of assets. Though it’s a widely used theory, still has been challenged widely. The critics question the feasibility of theory as a strategy for

As capital markets analysts, it is our sole duty to ensure the happiness of our clients and investors through rigorous financial models of a particular company’s stock for the purpose of forecasting its future trends, and ultimately leading to a recommendation of whether that particular stock should be bought or sold. In the general sense, a successful long-term investment strategy involves the following characteristics: selecting a comprehensible investment, investing early and taking appropriate risks, establishing a cash-flow plan, making stocks the central focus while also taking into account diversification, and achieving an effective balance by investing in bond funds for a safety net. It is also imperative to use tax advantaged investment

Active investments – A portfolio structure based on share analysis, new information and risk/return preferences (fundamental and technical analysis to support investment decisions)

Investors always seek for a way that they can get back greatest return while enjoying minimized risk. Instead of investing in a single asset, holding a portfolio is obviously less risky. However, how to select the best portfolio among tens of thousands of assets in today’s financial market? The stringent need of investors promote the raising of modern portfolio theory. In 1952, Harry Markowitz [1] established the fundamental model of modern portfolio theory: the Markowitz model, also called the mean-variance model. This model aimed to achieve a tradeoff between the expected return and the risk of return. As shown in Figure 1, among all efficient portfolios, the efficient frontier consisted of all those with highest return at each given risk level. C_1,C_2,and C_3 were the investors indifference curves which showed that traders prefer portfolios with high return or low risk. The tangent point R of the highest indifference curve and the efficient frontier gave the optimized portfolio.

This quote discussing the diversification of Antonio’s investments in the first act of Shakespeare’s play “The Merchant of Venice” was written in the 16th century. But it wasn’t until 1952 that Harry Markowitz wrote his paper “Portfolio Selection” that made him “the father of modern portfolio theory”(Markowitz, 1999). Since then, the use of statistical tools by financial professionals has become very common. In this report, the performance of Microsoft Corp. (hereinafter called MSFT) and Apple Inc. (hereinafter called Apple) will be analysed, by looking at both monthly and yearly, simple and excess returns. First, the descriptive statistics of each individual stock will be examined, and the “Efficient Frontier” and “Capital Market Line” will be drawn, then the performances of the two shares against each other will be compared, and finally an examination of the performances of both companies using CAPM. All the calculations are found on an excel file that will be referenced throughout this report.

The topic of portfolio and investments will be explored as well as the many different types of investments. In addition, we will review the most advantageous methods of investing and explore the different financial markets and investments and portfolio’s what best fits the needs. Finally we will delve into how ethics is vital to our daily lives especially in the business world.

Consider one of the most urgent problems of modern financial management, namely portfolio management. Analysis of this issue primarily is interesting for the head of analytical department of banks and investment companies and private investors.

Investment has become a growing tendency and a method for people dealing with their income, while portfolio is an important investment vehicle. In the same time, financial services industry has played a critical part in making investment portfolio available to ordinary people. In this essay, the meaning and functions of portfolio will be analyzed and it will argue the advantages of the financial services industry outweigh the disadvantages.

Harry W. Markowitz, the father of “Modern Portfolio theory”, developed the mean-variance analysis, which focuses on creating portfolios of assets that minimizes the variance of returns i.e. risk, given a level of desired return, or maximizes the returns given a level of risk tolerance. This theory aids the process of portfolio construction by providing a quantitative take on it. It integrates the field of quantitative analysis with portfolio management. Mean variance analysis has found wide applications both inside and outside financial economics. However it is based on certain assumptions which do not hold good in practice. Hence there have been certain revisions to it, so as to make it a more useful tool in portfolio management.

Discuss the general features, differences, advantages and disadvantages of active and passive portfolio strategies and their link with the theory of efficient capital markets.

Portfolio management is making decisions in relation to investment mix and policy, asset allocation for individuals and institutions and balancing risk against performance. This includes the strengths, weaknesses, opportunities and threats in the choice of domestic vs. international, growth vs. safety, and many other trade-offs encountered in the attempt to maximize return given the client’s risk tolerance. (Haughey, 2014)

Generally, researchers are interested in studying factors that can be applied to predict asset prices. Relied on Markowitz (1952)’s earlier work on diversification and modern portfolio model, it is known that idiosyncratic risk can be diversified away and only systematic risk matters to investors. Treynor (1961), Sharpe (1964) and Lintner (1965) independently contributed to the CAPM to explain the relationship between the systematic risk factor and securities returns. This emphasize the importance of systematic risk for investors to estimate asset price in order to earn excess return on market.