portfolio managment

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portfolio managment

portfolio managment: Investors are the most indispensable part of an organisation. They put their money within the stocks of the company in order to provide them with the opportunity to have the necessary amount of financing to run their day-to-day operations (Askari and Askari, 2012).

Organisations, on the other hand, are obliged to provide dividends to their shareholders in order to retain them for a long span of time. Investors can be classified into two different types such as Active Investors and Passive Investors. According to Bodie, Kane and Marcus, (2011), the investors that are aggressive in their output and investment criteria are known as Active Investors.

These are the investors, which are “Risk Takers”, as they are willing to take the risk for getting the required rate of return. Contrary to this, the investors, which are mainly concerned with the minimisation of the risk, are known as Passive Investors. It means that the risk profile and appetite of Passive Investors are relatively lower than Active Investors.

portfolio managment: The making of the investment portfolio is more than essential for an investor to get the desired outcome from their investment. The main aim of this assignment is also relating to the concept of Portfolio Management. The assignment requires making two different investment portfolio for two different types of investors. For the active investor, a portfolio is required to select whose risk-return trade-off would be fully rationalised. For the passive investor, a portfolio with relatively a lower appetite of risk is required so that a specific amount of return could be attained with proper management of the risk profile. The data range, which is expected to pursue the same assignment, is from January 2016 to December 2016.

Analysis & Discussion

Modern Portfolio Theory and Relevant Concept

Modern Portfolio Theory (MPT) is a hypothesis that put forth by Henry Markowitz in the year 1952. Henry received a noble prize for the same accomplishment as well. The central idea of MPT was to encourage the investors, especially the risk-averse investors to make highly diversified investment portfolio through which they can easily diversify their risk and maximise their return (Browne, 2011). In other words, MPT was more about optimizing the return of a portfolio by minimizing the rate of risk from the portfolio.

The main assumption of the aforementioned hypothesis is that the making of a well-diversified portfolio always reduces risk, which is an integral outcome for a risk-averse investor (Willcocks, 2013). MPT also was known as “Portfolio Theory” which accentuates on the construction of an efficient frontier where the rate of return and risk meets on a vertex (Busse, Goyal and Wahal, 2010).

portfolio managment: The MPT has remained under a limelight of many authors and researchers. The study conducted and presented by DeFusco et al., (2015) clearly revealed that the making of a portfolio inculcates the importance and implication of diversifying the risk and by investing in more than one stock a time, an investor can easily reap the sheer benefits of diversification. Backing the same study Drake and Fabozzi, (2010) put the statement that MPT is more efficient and aggressive in terms of minimising the riskiness of the portfolio instead…