Es#ma#ng

Required Return of
Shareholders
Exercise: Markowitz Mantra

Markowitz Model

Markowitz Model

2
2
2
(A+B) = A + B + 2AB

Risk Decomposi#on
Systema#c Risk

i2 m2

2
i
Unsystema#c Risk

2(ei)
Total Risk

Propor#on of Risk
RIL TATA SBI Infosys Biocon Nifty Portfolio
SD
1.62% 2.12% 2.46% 1.74% 2.54% 1.42% 1.50%
Sys Risk
1.12% 1.07% 1.37% 0.85% 0.21% 1.42% 1.18%
Unsys Risk
0.50% 1.06% 1.08% 0.89% 2.33% 0.00% 0.32%
Percenatge of Sys Risk 69.05% 50.14% 55.97% 49.00% 8.23% 100.00% 78.39%
Percenatge of Unsys Risk30.95% 49.86% 44.03% 51.00% 91.77% 0.00% 21.61%

Types of Diversica#on
Industrial
diversica#on

Geographical
diversica#on

Ownership
diversica#on

Time
diversica#on

Technological
diversica#on

Employee
diversica#on

Correla#on
RIL

TATA SBI Infosys Biocon Nifty

RIL

1.00

TATA

0.52

1.00

SBI

0.64

0.61

1.00

Infosys 0.54

0.41

0.44

1.00

Biocon 0.25

0.19

0.19

0.24

1.00

Nifty

0.71

0.75

0.70

0.29

0.83

1.00

Extreme PorPolios
RIL
AM
0.25%
SD
1.62%
Variance
0.03%
Co-efficient of Variation
6.56
Beta
0.95
RSQ
69%
Sys Risk
1.12%
Unsys Risk
0.50%
Weight
40.10%
Mean Variance Ratio
9.470
Mean SD Ratio
0.152
Percenatge of Sys Risk 69.05%
Percenatge of Unsys Risk 30.95%

TATA
-0.25%
2.12%
0.04%
-8.59
1.06
50%
1.07%
1.06%
12.41%
-5.529
-0.116
50.14%
49.86%

SBI
0.19%
2.46%
0.06%
12.76
1.30
56%
1.37%
1.08%
0.00%
3.217
0.078
55.97%
44.03%

Infosys
-0.12%
1.74%
0.03%
-14.50
0.86
49%
0.85%
0.89%
31.10%
-3.985
-0.069
49.00%
51.00%

Biocon Nifty Portfolio

0.15% 0.07%
0.06%
2.54% 1.42%
1.39%
0.06% 0.02%
0.02%
16.53
19.72
24.62
0.51
1.00
0.87
8%
100%
78%
0.21% 1.42%
1.08%
2.33% 0.00%
0.30%
16.39% 100.00%
2.406
3.613
2.928
0.060
0.051
0.041
8.23% 100.00% 78.23%
91.77% 0.00% 21.77%

RIL
AM
0.25%
SD
1.62%
Variance
0.03%
Co-efficient of Variation
6.56
Beta
0.95
RSQ
69%
Sys Risk
1.12%
Unsys Risk
0.50%
Weight
100.00%
Mean Variance Ratio
9.470
Mean SD Ratio
0.152
Percenatge of Sys Risk 69.05%
Percenatge of Unsys Risk 30.95%

TATA
-0.25%
2.12%
0.04%
-8.59
1.06
50%
1.07%
1.06%
0.00%
-5.529
-0.116
50.14%
49.86%

SBI
0.19%
2.46%
0.06%
12.76
1.30
56%
1.37%
1.08%
0.00%
3.217
0.078
55.97%
44.03%

Infosys
-0.12%
1.74%
0.03%
-14.50
0.86
49%
0.85%
0.89%
0.00%
-3.985
-0.069
49.00%
51.00%

Biocon
0.15%
2.54%
0.06%
16.53
0.51
8%
0.21%
2.33%
0.00%
2.406
0.060
8.23%
91.77%

Nifty Portfolio
0.07% 0.25%
1.42% 1.62%
0.02% 0.03%
19.72
6.56
1.00
0.95
100%
69%
1.42% 1.12%
0.00% 0.50%
100.00%
3.613
9.392
0.051
0.152
100.00% 69.05%
0.00% 30.95%

Ecient Fron#er

PorPolio op#miza#on is achieved through Dominance Principle

78

Ecient Fron#er
0.30%
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%

CAL

Risk
1.62%
1.60%
1.58%
1.56%
1.54%
1.52%
1.50%
1.48%
1.46%
1.44%
1.42%
1.40%
1.39%

Return
0.25%
0.25%
0.24%
0.24%
0.24%
0.23%
0.22%
0.21%
0.19%
0.18%
0.15%
0.12%
0.06%

RIL
99.64%
97.51%
95.16%
92.51%
89.33%
85.05%
79.00%
75.47%
71.44%
66.73%
60.67%
53.02%
40.10%

Weights
TATA SBI Infosys
0.00% 0.00% 0.00%
0.00% 0.00% 0.00%
0.00% 0.00% 0.00%
0.00% 0.00% 0.00%
0.00% 0.00% 0.00%
0.00% 0.00% 0.00%
0.00% 0.00% 1.31%
0.00% 0.00% 5.11%
0.00% 0.00% 9.41%
0.00% 0.00% 14.56%
0.86% 0.00% 20.24%
5.14% 0.00% 24.31%
12.41% 0.00% 31.10%

CAL: Line that connects all por2olios that can be formed using a risky asset and a riskless asset

Biocon
0.36%
2.49%
4.84%
7.49%
10.67%
14.95%
19.69%
19.41%
19.15%
18.71%
18.24%
17.53%
16.39%

CAPM Expected Return

RIL
TATA
SBI
Infosys
Biocon
Nifty
Portfolio

Risk Free Rate

5.50%
5.50%
5.50%
5.50%
5.50%
5.50%
5.50%

Beta
0.95
1.06
1.30
0.86
0.51
1.00
0.94

Market
Return
19.64%
19.64%
19.64%
19.64%
19.64%
19.64%
19.64%

Risk
Premium
14.14%
14.14%
14.14%
14.14%
14.14%
14.14%
14.14%

Expected
Return
18.98%
20.53%
23.86%
17.70%
12.77%
19.64%
18.77%

Actual Actual Return Return Expected Return

85.55%
66.57%
-46.16%
-66.69%
61.70%
37.84%
-25.98%
-43.69%
46.69%
33.93%
19.64%
0.00%
11.94%
-6.82%

Capital Market Line

Market
Risk Free Asset
Weights
Weighted Asset
Return Risk Return Risk Market
RF
Return
Risk
0.07% 1.42% 0.01%
0%
0%
100%
0.01% 0.00%
0.07% 1.42% 0.01%
0%
10%
90%
0.02% 0.14%
0.07% 1.42% 0.01%
0%
20%
80%
0.02% 0.28%
0.07% 1.42% 0.01%
0%
30%
70%
0.03% 0.42%
0.07% 1.42% 0.01%
0%
40%
60%
0.03% 0.57%
0.07% 1.42% 0.01%
0%
50%
50%
0.04% 0.71%
0.07% 1.42% 0.01%
0%
60%
40%
0.05% 0.85%
0.07% 1.42% 0.01%
0%
70%
30%
0.05% 0.99%
0.07% 1.42% 0.01%
0%
80%
20%
0.06% 1.13%
0.07% 1.42% 0.01%
0%
90%
10%
0.06% 1.27%
0.07% 1.42% 0.01%
0%
100%
0%
0.07% 1.42%
0.07% 1.42% 0.01%
0%
110%
-10% 0.08%
1.56%
0.07% 1.42% 0.01%
0%
120%
-20% 0.08%
1.70%
0.07% 1.42% 0.01%
0%
130%
-30% 0.09%
1.84%
0.07% 1.42% 0.01%
0%
140%
-40% 0.09%
1.98%
0.07% 1.42% 0.01%
0%
150%
-50% 0.10%
2.12%
0.07% 1.42% 0.01%
0%
160%
-60% 0.11%
2.26%
0.07% 1.42% 0.01%
0%
170%
-70% 0.11%
2.41%
0.07% 1.42% 0.01%
0%
180%
-80% 0.12%
2.55%
0.07% 1.42% 0.01%
0%
190%
-90% 0.12%
2.69%
0.07% 1.42% 0.01%
0%
200% -100% 0.13%
2.83%

Capital Market Line

Return
0.14%
0.12%
0.10%
0.08%
Return

0.06%
0.04%
0.02%
0.00%
0.00%

SD
Return

0.50%

1.00%

1.50%

2.00%

2.50%

RIL
1.624%
0.25%

TATA
2.124%
-0.25%

SBI
Infosys Biocon
2.456% 1.745% 2.535%
0.19% -0.12%
0.15%

3.00%

Nifty Portfolio
1.415% 1.500%
0.07%
0.05%