Comprehensive overview of individual stocks



Portfolio Development
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Portfolio Development

portfolio beta
BIG 1.04
BMY 0.78
IBM 0.86
KO 0.66
ORCL 1.1
This report adopted a comprehensive overview of the individual stocks to identify their risk levels based on their returns and subsequent beta value. Given the clients risk averse approach; the client was comfortable losing up to an estimated 30 percent of the portfolio if the return was sustainable. Thus, the above stocks were selected because their risk attributes resonated with the clients risk profile.
Expected Portfolio Return
portfolio returns
weight returns weighted returns
20% 13.90% 2.7800%
15% 11.30% 1.6950%
15% 12.10% 1.8150%
25% 10.10% 2.5250%
25% 14.50% 3.6250%
The report adopted a CAPM model in examining the portfolios return. The capital asset pricing method takes into account the risk free rate, usually exhibited by bonds. Moreover, a risk premium details the difference between risk free return and market return. Meanwhile, the stocks beta factor is integrated in evaluating the corresponding portfolio return. As such, the formula presented below was used to compute the expected returns, which was estimated to be 12.44%.

Based on the underlying risk profile of the client not selected, i would prepare a different portfolio to suit their objectives, because the current portfolio is aggressive. The clients I did not choose are elderly, and would therefore prefer a sustainable return on investment. I would therefore, develop a different portfolio with a lower standard deviation and returns.
Portfolio Standard Deviation
standard deviation weight weighted standard deviation
BIG 32% 20% 6.400%
BMY 28% 15% 4.200%
IBM 20% 15% 3.000%
KO 13% 25% 3.250%
ORCL 16% 25% 4.000%
portfolio standard deviation 100% 20.850%
The portfolios standard deviation was computed using individual asset weights. The computation process established that the portfolio has a higher risk than return, with an expected return of 12.44% and standard deviation of 20.85 percent. Subsequently, I would prepare a portfolio with a lower standard deviation for the client I did not choose to enhance efficient portfolio performance (Carnia, 2019). The clients risk profile is tended to focus on sustainable return, hence a low standard deviation.



Carnia, E. (2019, October). Optimization of the mean-absolute deviation portfolio investment in some mining stocks using the singular covariance matrix method. InJournal of Physics: Conference Series(Vol. 1315, No. 1, p. 012002). IOP Publishing.

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