Portfolio & Fund Management - 15 Stocks in Malaysia

Topics: Modern portfolio theory, Investment, Variance Pages: 5 (1673 words) Published: June 1, 2013
The 10 stocks are being selected for portfolio 1 among the 15 stocks due to having the highest market capitalization. It is a measurement derive from share price times the number of shares outstanding. In addition, it could be represent the public opinion of a company’s net worth. Undoubtedly, these 10 stocks are chosen because of having the highest company’s value, highest expectation from the public and both highest economic and monetary conditions. Although sometime market cap might be an economic bubble, it is still the best estimate of all market participants at any point in time. However, Axiata group and Maxis is rejected from the list since they are both lack of data and information. For the second portfolio, the 10 stocks are selected based on sectors which we categorized into banking, plantation and telecommunication. The reason we select is to evaluate the different performance of different industry which we can then compare the single stocks with the market performance to value the stocks.

Average monthly return is a seasonal performance of a stock which an investor must analyzed. The table above illustrates the average monthly return for the past 5 years which give a sense of how the investment performed during this particular period. However, investors should also look at monthly performance to fully appreciate the consistency of its monthly returns. For examples, a short term investors or speculators of CIMB group holdings may experience an unexpected loss during December 2010 to January 2011 if he or she values the stock accordingly to the average monthly returns. On the other hands, to be detailing evaluate an individual stocks or portfolio, standard deviation which is a risk bear to obtain the prospected return or is widely described as a variability used in statistic and probability theory must be emphasized. It illustrates how much variation from the average (Weston n.d). Lower standard deviation indicates that the data is closer to the mean and vice-versa. As High levels of uncertainty (high risk) are associated with high potential returns, IOI stocks who providing a second highest average return (mean) bearing the highest risk (standard deviation). Similarity, in the second portfolio, the highest return stock which is Digi bearing the third highest risk. Covariance and correlation is matrix that shows the extent to which two randomly selected variables co-vary(Quinn & Keough 2001). Covariance is the designed to show the degree of co-movement between two random variables. For example, a positive number indicates that the two variables tend to move in the same direction while negative covariance showing movement in the opposite direction. However, correlation is described as ratio of the covariance between the two random variables and the product of their standard deviations. Unlike the covariance, correlation is much easier to interpret as the value will only lie between -1 and +1. For example, - indicate a perfectly inverse relationship (a unit change in means (average return) will always bring a unit change of the other in the opposite direction). As showing in the data above, for the both portfolio showing, each of the individual stock are very close correlated and covariance with others making them a positive value. However, Tenaga, Misc and Petronas are showing a negative value in both their covariance and correlation to each others suggest that they are stocks that enabling diversification of risk since they have opposite direction, once the single stock is rising in value, the other will fall.

‘Beta is a measurement of sensitivity of a stock to macroeconomic news’(Bodie et al. 2010, p.167). Positive beta value illustrated that the asset’s return following the market’s return (Bodie et al. 2010, p.167). The negative beta suggests that asset’s return is generally moves opposite to the market’s return. The higher the beta, the more the asset sensitive to the macroeconomic news and hence...
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