Die Arbeit legt die Portfoliotheorie an Hand eine praktischen Beispiels dar. Auf der Basis von 10 Stocks aus dem FTSE 100 wird das optimale Portfolio errechnet und dessen Performance eingeordnet. ++++ According Warren Buffett, financial investors should never purchase a security, if they cannot accept that the value might be cut in half (Schömann-Finck, 2010).
One of the most successful global investors has illustrated with this quote the risks involved in the business of financial investments. In order to optimize risk-return tradeoffs, scientific research has developed efficient diversification techniques. This paper examines the process of portfolio diversification based on a sample of 10 randomly selected securities. First the optimal portfolio is identified in order to evaluate its performance against the market trend via industry accepted benchmarking comparison tools in a second step. Finally, potential portfolio gains, achieved via diversification across additional asset classes, are discussed and evaluated.
According to Bodie et al. (2008) the investment decision process can be separated into three major steps (see figure 1): Capital Allocation, Asset Allocation and Security Selection. For the purpose of this paper 100% of the available funds are assumed to be allocated into stocks. The portfolio created (see figure 2) consists of 10 randomly selected securities taken from the FTSE 100 index.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Investment Decision
- Portfolio Selection
- Return and Risk Level Calculations
- Correlation and Covariance Calculations
- The Efficient Frontier
- Optimal Portfolio
- Performance Measurement
- Risk Adjusted Performance Metrics
- Investments across Asset Classes
- International Diversification / Emerging Markets
- Commodities
- Corporate Bonds / Government Bonds ("Gilts")
- Real Estate
- Hedge Funds
- Conclusion - Analysis Limitation
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay examines the process of portfolio diversification, using a sample of 10 randomly selected securities from the FTSE 100 index. The main objective is to identify the optimal portfolio and evaluate its performance against the market trend via industry-accepted benchmarking comparison tools. The essay also explores the potential for portfolio gains through diversification across additional asset classes.- Portfolio diversification
- Optimal portfolio identification
- Performance measurement and benchmarking
- Diversification across asset classes
- Risk-return tradeoffs
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: The introductory chapter sets the context for the essay by highlighting the importance of risk management in financial investments and introducing the concepts of portfolio diversification and performance measurement. It outlines the scope of the analysis and the sample of securities used.
- Investment Decision: This chapter describes the investment decision process, focusing on capital allocation, asset allocation, and security selection. The essay focuses on the allocation of funds into stocks and presents the selected securities for the portfolio.
- Portfolio Selection: This chapter delves into the process of portfolio selection, including calculations of return and risk levels, correlation and covariance, and the efficient frontier. It explains how to identify the optimal portfolio based on the selected securities.
- Performance Measurement: This chapter explores different risk-adjusted performance metrics used to evaluate the performance of the selected portfolio, including the Sharpe ratio, M2 measure, Jensen's Alpha, and Treynor Ratio.
- Investments across Asset Classes: This chapter discusses the potential for portfolio gains through diversification across various asset classes, such as international stocks, commodities, corporate bonds, government bonds, real estate, and hedge funds.
Schlüsselwörter (Keywords)
The key themes and concepts explored in this essay include portfolio diversification, optimal portfolio, performance measurement, risk-adjusted metrics, asset allocation, international diversification, emerging markets, commodities, corporate bonds, government bonds, real estate, and hedge funds. The essay uses the FTSE 100 index as a benchmark for portfolio evaluation.- Quote paper
- Patrick Daum (Author), 2011, Investment Portfolio Selection and Performance Measurement, Munich, GRIN Verlag, https://www.grin.com/document/193415
