group 4 spm project

8/13/2019 Group 4 SPM Project

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Group Project of Security and

Portfolio Management

------------------------Under guidance of Prof.

Debasish Maitra-------------------------

Submitted by:

1. Saurav Singh (50037)

2. Shalini Srivastava (50038)3. Pritika Priya (50030)

4. Harshita Narayan ( 50013)



Objective of project: To form and optimize portfolio consisting of stocks from different sectors.

Methodology employed: We have selected 10 stocks from different sectors. In order to determine

weights for different stocks we have used portfolio optimization using “Sharpe ratio maximization” and

“single index model”.

In order to calculate month wise return on stocks for last five years, we have taken data from BSEwebsite, for risk free rate we have taken month wise 5 year T-bill yield, taken from RBI website. For

single index model we have taken return on BSE SENSEX for the same period as that of stocks (i.e. last

five year).

Findings and Analysis:

1. About Individual Stocks

Out of significant alpha values, only Tata steel has positive alpha.

2. Weights assigned to different stocks, using Sharpe ratio maximization (Markowitz model)

Market risk premium = 12.5%,

For minimum portfolio risk maximum weight is assigned to Berger paints stock, be it with short selling

or without short selling.

For maximum Sharpe ratio portfolio maximum weight is assigned to Tata Steel stock, be it with short

selling or without short selling.

SL.No. Stock Name

Alpha(

Individual

Stock

Premium)

P-valueSignificant/Not

Significant

1 SBI 0.014133921 0.279665 Not Significant

2 ITC -0.040463796 0.012286 Significant

3 TCS -0.003323717 0.845797 Not Significant

4 BIOCON 0.018611378 0.302822 Not Significant

5 BERGER -0.017045332 0.215704 Not Significant

6 AIRTEL -0.043774981 0.024931 Significant

7 RELIANCE 0.043279243 0.119053 Not Significant

8 TATA STEEL 0.06297991 0.000242 Significant

9 BRITAANIA -0.058980239 0.014126 Significant

10 FUTURE RETAIL 0.02759534 0.268098 Not Significant



SBI ITC TCS BIOCON BERGER AIRTEL RELIANCE TATA STEEL BRITAANIA FUTURE RETAIL

No Short

Selling 0.00 0 .31 0.11 0.00 0.41 0.08 0.00 0.00 0.10 0.00 0.20502839 0.29028532

With Short

Selling 0 .40 0.29 0.10 0.10 0.36 0.11 -0.11 -0.22 0.10 -0.13 0.09945964 0.26069946

No Short

Selling 0.00 0 .00 0.13 0.09 0.00 0.00 0.19 0.59 0.00 0.00 0.38084088 0.571314079

With Short

Selling 0 .03 -0.42 0.56 0.35 -0.32 -0.44 0.54 1.01 -0.41 0.09 0.40156995 1.053027974

Maximum

Sharpe Ratio

Sharpe Ratio Portfolio RiskWEIGHTS

Minimum

Portfolio Risk

This signifies that, Optimization of portfolio using Sharpe ratio maximization gives more weightage to

stocks having positive alpha.

3. Single Index Optimization

Market risk premium = 12.5%,

SBI ITC TCS BIOCON BERGER AIRTEL RELIANC TATA STE BRITAANI FUTURE RETASENSEX Total

Active Portfolio -8.63241 16.90173 1.17661 -5.95007 9.41669 12.39786 -5.924643 -24.858807 11.1151381 -4.642098787 0 1

Passive Portfolio -0.22077 0.432246 0.030091 -0.15217 0.240823 0.317064 -0.151517 -0.63574112 0.28425943 -0.118717406 0.974426 1

WEIGHTS ASSIGNED TO DIFFERENT STOCKS

Optimization using index model is coming inferior to that of Markowitz model, this is due to

insignificant alpha values for the stock. Further if we predict alpha using macro-economic analysis the

portfolio would fetch better results.

SBI ITC TCS BIOCON BERGER AIRTEL RELIANCE TATA STE BRITAANIA FUTURE RETAIL SD Sharpe Ratio

Markowitz

model 0.03 -0.42 0.56 0.35 -0.32 -0.44 0.54 1.01 -0.41 0.09 0.2607 0.40156995

Index Model -8.6324 16.9017 1.17661 -5.9501 9.41669 12.39786 -5.924643 -24.85881 11.1151381 -4.642098787 19.068 -0.6433015

Weights

However, a negative Sharpe ratio indicates that a risk-less asset would perform better than the security

being analyzed.

group 4 spm project

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