Assessment Information/Brief 2024
|Risk, Portfolio, and Investment Analysis
|Weighting within module
|This assessment is worth 100% of the overall module mark.
|Submission deadline date and time
|Module Leader/Assessment set by Zeeshan Ali Syed
Both sections are compulsory. Section A word count is 2500 words, and Section B’s word count is 2500 words. You are allowed +/- 10%. References and Tables are not counted towards the word count. Please proofread your submission and minimise grammar and spelling issues. Please assume that your report is read by audiences other than finance professionals; hence, it should reflect inclusive language and, where possible, a plain explanation for every concept.
Details of Assessment task
Based on the tasks below, write a report of no more than 2500 words. Note that share price data is available from Yahoo Finance, and further financial data can be researched. The tasks and their marks distribution are as follows:
- Carry out a risk and return analysis of 20 stocks taken at random and analyse as follows:
- Construct a risk and return profile of each of the twenty stocks over the last 5 years based on monthly observations (e.g. use the search box on this page and click here).
- Evaluate your results and recommend stocks for a prospective investor who is:
- Risk Averse: The investor would like to invest in “Low-risk stocks”. So, identify which stocks are low risk among your selected 20 stocks.
- Risk Aggressive: The investor wants to invest in “High-risk stocks”. So, identify which stocks are High risk among your selected 20 stocks.
Note: The criterion for identifying a stock as low or high risk is the AVERAGE STANDARD DEVIATION of all stocks. In Question 1.a. you will calculate individual standard deviations; you can take the Average of these all-standard deviations. The assumption here is that you equally invest all 20 stocks.
- Portfolio Risk and Return Analysis
- Construct a high risk and a low risk by allocating equal weights to each stock you have identified in the previous question (1. b).
- Report on the risk and return of each portfolio you have constructed in part a of this question, including assessing their suitability for investors with varying risk preferences (you may assume that investors also can invest in a risk-free asset).
- Provide a reflective summary of your understanding of portfolio management theory and practice. Use lessons from the exercises you have done in previous sections.
Note: Stock can be allocated to only one of the portfolios you construct; therefore, decide which category you would place it in if a stock fits two profiles. Portfolio analysis refers primarily to the combined overall performance of the stocks in the portfolio and not the individual stock performance. Further, you are not assessed based on the portfolio performance; instead, marks will be awarded based on the quality of your analysis and your ability to present your data and arguments.
Step 1- DATA: you need to download 5 years of monthly share price data for the 20 stocks from the FTSE 100 using Yahoo Finance.
Step 2- Write the report following the below structure.
Introduction – Explain why you choose stocks (not indices). You can use the key metrics such as market cap, P.E Ratio or beta. Please do not leave it to the reader to guess why you selected these stocks.
- Calculate the Risk (standard deviations) and return (simple returns OR log returns) of these individual stocks and present your answers neatly in the report. Use the Table to summarise the returns and standard deviation; also, draw the graph where you put the standard deviation on the x-axis and stock returns on the y-axis.
- Write a non-technical analysis of these stocks for prospective investors with differing risk preferences. The study should answer which stocks are suitable for risk-averse investors and which are ideal for risk-aggressive investors.
Portfolio Analysis –
- Construct a Portfolio by combining the stock you categorised as low risk and high risk. The criteria. Assume that each portfolio is equally weighted.
- Calculate Portfolio risk & return– You need to use a mean-variance analysis approach based on historical prices and returns. For return calculation, you can use a simple return or log return method; either is fine.
- Analyse and compare the portfolios and remember the possibility of investing in a risk-free investment.
- Conclusion and reflection – Discuss your findings and note what you learned.
Other than risk and return trade-off, what are the most suitable objectives for investors of bonds? Using empirical literature, evaluate the successes portfolio composition can achieve in transforming our societies and communities. You can also use real-life examples where financial institutions and fund managers have used their capital to maximise the wealth and welfare of all concerned stakeholders.
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