Essay on Investment and Portfolio

Submitted By wec1190
Words: 800
Pages: 4

The principal of 9,984.31 dollars was invested in my portfolio consisting of 7 securities from 6 different industries including telecommunications, retail, energy, etc. The beta targeted was 0.8 (0.78) to maintain a safe investment involving less risk. My risk-averse approach brought me the following results;

The Expected Return on my portfolio is;
EX RETURN = RF + BETA X RM – RF
= 0.0550 + 0.78 x 9.89 – 0.0550
(0.0550 = RF 1 YEAR US) (RM = 9.89 RETURN ON MARKET (1 YEAR DOW JONES INDEX))
= 8.20315 %
The portfolio Variance is 3.52
The portfolio Correlation is 0.88
The portfolio Standard Deviation is 12.37
The Treynor measure is 0
The Sharpe index is 1.74

The assets ranked in accordance to the geometric mean are as follows; SECURITY | WEIGHTAGE | TOTAL RETURN 1YR | | | | Telecommunication Services | 17.31% | 33.95% | ROGERS COMMUNICATIONS INC | 17.31% | 33.95% | Consumer Discretionary | 16.87% | 20% | TARGET CORP | 16.87% | 20% | Consumer Staples | 15.78% | 12% | COCA-COLA CO | 15.78% | 12% | Information Technology | 19.11% | 12% | GOOGLE INC | 8.16% | 24% | INTL BUSINESS MACHINES CORP | 10.95% | 4% | Energy | 12.96% | 7% | EXXON MOBIL CORP | 12.96% | 7% | Financials | 17.96% | 2% | TORONTO-DOMINION BANK | 17.96% | 2% | Overall | 99.99% | 14.43% |

SECURITY | BETA | TREYNOR | SHARPE | STD DEV | | | | | | Telecommunication Services | 0.58 | 1 | 2.6 | 20.67 | ROGERS COMMUNICATIONS INC | 0.58 | 1 | 2.6 | 20.67 | Consumer Discretionary | 0.53 | 1 | 1.68 | 18.71 | TARGET CORP | 0.53 | 1 | 1.68 | 18.71 | Consumer Staples | 0.84 | 0 | 1.13 | 16.95 | COCA-COLA CO | 0.84 | 0 | 1.13 | 16.95 | Information Technology | 0.98 | 0 | 0.98 | 18.83 | GOOGLE INC | 0.91 | 0 | 1.55 | 25.32 | INTL BUSINESS MACHINES CORP | 1.03 | 0 | 0.38 | 19.48 | Energy | 1.03 | 0 | 0.63 | 17.17 | EXXON MOBIL CORP | 1.03 | 0 | 0.63 | 17.17 | Financials | 0.76 | 0 | 0.23 | 16.9 | TORONTO-DOMINION BANK | 0.76 | 0 | 0.23 | 16.9 | Overall | 0.78 | 0 | 1.74 | 12.37 |

Since I wanted to play it safe, investing in Rogers which has a beta of 0.58 gave my portfolio exposure to the telecommunications sector without any volatility involved. The same theory applies for investment in Target Corporation. Both these stocks give me a Treynor ratio of 1. Coca-Cola is a personal favourite so I felt it right to diversify my portfolio into consumer products. Google and IBM provided betas that move with the market. The oil and gas industry still shows promise so I chose Exxon to invest in. As I have a bank account with Toronto Dominion and like their future business plans I gravitated towards them to help me diversify by investing in the banking sector. The total return of 14.43% exceeds the expected return of 8.20%. We have calculated the beta, Treynor and Sharpe ratios that help measure the risk adjusted performance for the portfolio. The portfolio’s beta of 0.78 indicates it…