Portfolio Analysis

In financial terms, ‘portfolio analysis’ is a study of the performance of specific portfolios under
different circumstances. It includes the efforts made to achieve the best trade-off between risk
tolerance and returns. The analysis of portfolio can be conducted either by a professional or an
investor who may utilize specialized software to do so.
What is Portfolio Analysis?
What is Portfolio Analysis?
It involves quantifying the operational and financial impact of the portfolio. It is vital to evaluate
the functioning of investments and timing the returns effectively.
The analysis of a portfolio extends to all classes of investments such as bonds, equity indexes,
commodities, funds, options and securities. Portfolio analysis gains importance because each
asset class has peculiar risk factors and returns associated with it. Hence, the composition of a
portfolio impacts the rate of return on the overall investment.

What is involved in Portfolio Analysis?

Portfolio analysis is broadly carried out for each asset at two levels:
 Risk aversion: This method analyzes the portfolio composition while considering the risk
appetite of an investor. Some of the investors may prefer to play safe and accept low profits
rather than invest in risky assets generating high returns.
 Analyzing returns: While performing portfolio analysis, prospective returns are calculated
through the average and compound return methods. An average return is simply the arithmetic
average of returns from individual assets

However, compound return is the arithmetic mean that considers the cumulative effect on
overall returns.

MORDEN PORTOFOLIO THEORY

Modern portfolio theory (MPT) is a theory of investment which attempts to maximize
portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a
given level of expected return, by carefully choosing the proportions of various assets. Although
MPT is widely used in practice in the financial industry and several of its creators won a Nobel
memorial prize[cit] for the theory, in recent years the basic assumptions of MPT have been widely
challenged by fields such as behavioral economics.
MPT is a mathematical formulation of the concept of diversification in investing, with the aim of
selecting a collection of investment assets that has collectively lower risk than any individual
asset. That this is possible can be seen intuitively because different types of assets often change
in value in opposite ways. For example, when prices in the stock market fall, prices in the bond
market often increase, and vice versa[. A collection of both types of assets can therefore have
lower overall risk than either individually. But diversification lowers risk even if assets' returns
are not negatively correlated—indeed, even if they are positively correlated.
More technically, MPT models an asset's return as a normally distributed function (or more
generally as an elliptically distributed random variable), defines risk as the standard deviation of
return, and models a portfolio as a weighted combination of assets so that the return of a
portfolio is the weighted combination of the assets' returns. By combining different assets whose
returns are not perfectly positively correlated, MPT seeks to reduce the total variance of the
portfolio return. MPT also assumes that investors are rational and markets are efficient.
MPT was developed in the 1950s through the early 1970s and was considered an important
advance in the mathematical modeling of finance. Since then, many theoretical and practical
criticisms have been leveled against it. These include the fact that financial returns do not follow
a Gaussian distribution or indeed any symmetric distribution, and that correlations between asset
classes are not fixed but can vary depending on external events (especially in crises). Further,
there is growing evidence that investors are not rational and markets are not efficient

Diversification
An investor can reduce portfolio risk simply by holding combinations of instruments which are

not perfectly positively correlated (correlation coefficient )). In other words,

investors can reduce their exposure to individual asset risk by holding a diversified portfolio of
assets. Diversification may allow for the same portfolio expected return with reduced risk.
If all the asset pairs have correlations of 0—they are perfectly uncorrelated—the portfolio's
return variance is the sum over all assets of the square of the fraction held in the asset times the
asset's return variance (and the portfolio standard deviation is the square root of this sum)

Systematic risk and Specific risk

Specific risk is the risk associated with individual assets - within a portfolio these risks can be
reduced through diversification (specific risks "cancel out"). Specific risk is also called
diversifiable, unique, unsystematic, or idiosyncratic risk. Systematic risk (a.k.a. portfolio risk or
market risk) refers to the risk common to all securities - except for selling short as noted below,
systematic risk cannot be diversified away (within one market). Within the market portfolio,
asset specific risk will be diversified away to the extent possible. Systematic risk is therefore
equated with the risk (standard deviation) of the market portfolio.
Since a security will be purchased only if it improves the risk-expected return characteristics of
the market portfolio, the relevant measure of the risk of a security is the risk it adds to the market
portfolio, and not its risk in isolation. In this context, the volatility of the asset, and its correlation
with the market portfolio, are historically observed and are therefore given. (There are several
approaches to asset pricing that attempt to price assets by modeling the stochastic properties of
the moments of assets' returns - these are broadly referred to as conditional asset pricing models.)
Systematic risks within one market can be managed through a strategy of using both long and
short positions within one portfolio, creating a "market neutral" portfolio.

Indian Plywood Industry

The interior infrastructure sector comprises wood panel and decorative surfacing products, tiles,
marble, all kinds of granite, paints, sanitary ware, gypsum boards, glass, plywood, decorative
veneers, decorative laminates, particleboards and medium density fiberboard (MDF).

The Indian furniture industry is pegged at Rs 36,000-crore. Indian furniture, reputed for its
design, fashion and technology quality, is exported worldwide. Around 85 percent of the industry
is unorganized while the 15 percent comprises organized manufacturers and exporters. This is
expected to grow by 13-15 percent in the next five years.

The fragmented Rs 13,000-crore Indian plywood and laminate industry is growing 8percent
annually. Although the unorganized sector accounts for around 80 percent of the plywood
industry and 50 percent of the laminates industry, the organized sector’s 25percent annual
growth outperformed industry growth.

India is one of the largest consumers of wood in Southeast Asia with sufficient tropical wood of
all varieties. Imports are mostly from Malaysia, Myanmar, Indonesia, Nigeria, Ivory Coast,
Ghana, Togo, Gabon, Brazil, Panama, Costa Rica, Ecuador and New Zealand. The major ports
 used for imports are Kandla, Mumbai, Mangalore, Tuticorin, Chennai, Vishakhapatnam and
Kolkata as well as many internal container depots

Major Player In Industry

1. Greenply
2. Centuryply
3. Kit ply
4. Archidply
5. Sharda plywood

ARCHIDP
LY
Closing
Date price Re(y) nifty Rm(X) x2 xy Re- Re> (Re-Re>)2
3033.
22.7 45
- - -
0.881057 2766. 8.7952 77.35670 7.74913 5.279706 27.87530
January 22.5 269 65 7 605 3 996 596
- - -
12.66666 2674. 3.3271 11.06978 42.1436 17.06531 291.2250
February 19.65 667 6 3 39 3 639 236
- -
24.17302 3060. 14.422 208.0147 - 28.57167 816.3407
March 14.9 799 35 72 777 348.641 772 676
- -
3.020134 19.398 376.2865 - 7.418783 55.03835
April 14.45 228 3654 11 963 58.5849 955 537
28.71972 4529. 23.970 574.6083 688.440 24.32107 591.5146
May 18.6 318 9 99 949 2 346 141
-
66.39784 4340. 4.1722 17.40789 61.99919 3843.900
June 30.95 946 9 8 982 -277.03 974 768
- -
12.76252 4711. 8.5350 72.84787 - 17.16116 294.5057
July 27 019 4 96 07 108.929 992 531
- - -
1.481481 4625. 1.8264 3.335813 2.70580 5.880131 34.57594
August 26.6 481 35 2 747 9 208 303
Septemb 35.15037 5083. 9.9030 98.07008 348.095 30.75172 945.6686
er 35.95 594 4 34 963 4 621 651
- - -
8.484005 4563. 10.219 104.4389 86.7026 12.88265 165.9628
October 32.9 563 9 5 591 2 529 073
 - -
Novembe 16.56534 12.228 149.5380 - 20.96399 439.4892
r 27.45 954 5122 58 817 202.571 927 654
-
Decembe 2.550091 5232. 2.1515 4.628966 5.48652 1.848558 3.417169
r 28.15 075 2 03 532 9 652 091

52.78379 62.269 1697.603 185.567 3.10862E- 7509.514

Total 672 4 94 4 15 437
4.398649 5.1891 Varianc 682.6831
AVG 727 16 e 307
S.D 8.7937

Market Variance 194.9528

-
0.0642
Beta 7
4.7321
Alpha 39
Systematic 0.8052
Risk 04
Unsystemati 681.87
c Risk 79

Beta=(nExy-Ex*Ey)/(n*Ex^2-(Ex*Ex))
Alpha=y*-bX*
Systematic Risk=b^2*MARKET
VARIANCE
Unsystemetic Risk=toal variance of index-systemetic risk
CENTURYPL
Y
Closing (Re-
Date price Re(y) nifty Rm(X) x2 xy Re- Re> Re>)2
3033.
30 45
- -
3.866666 2766. 8.7952 77.35670 - 0.457501 0.209307
January 31.16 667 65 7 605 34.0084 207 355
- - -
3.562259 2674. 3.3271 11.06978 11.8520 7.886427 62.19573
February 30.05 307 6 3 39 9 181 368
- -
9.317803 3060. 14.422 208.0147 - 13.64197 186.1033
March 27.25 661 35 72 777 134.388 153 873
10.09174 19.398 376.2865 195.760 5.767575 33.26492
April 30 312 3654 11 963 7 245 421
-
1.033333 4529. 23.970 574.6083 24.7700 3.290834 10.82959
May 30.31 333 9 99 949 2 541 197
-
45.49653 4340. 4.1722 17.40789 - 41.17236 1695.163
June 44.1 58 9 8 982 189.824 792 88
-
3.174603 4711. 8.5350 72.84787 27.0955 1.149564 1.321498
July 45.5 175 4 96 07 4 699 998
-
4.505494 4625. 1.8264 3.335813 - 0.181326 0.032879
August 47.55 505 35 2 747 8.22893 632 347
Septemb 9.358569 5083. 9.9030 98.07008 92.6782 5.034402 25.34520
er 52 926 4 34 963 4 052 403
- - -
5.961538 4563. 10.219 104.4389 60.9241 10.28570 105.7957
October 48.9 462 9 5 591 7 634 548
- -
Novembe 11.65644 12.228 149.5380 - 15.98060 255.3798
r 43.2 172 5122 58 817 142.542 959 829
Decembe 4.861111 5232. 2.1515 4.628966 0.536943 0.288308
r 45.3 111 2 03 532 10.4587 237 04
51.89001 62.269 1697.603 2375.930
Total 449 4 94 - 353
4.324167 5.1891 85 215.9936
AVG 874 16 Variance .4 685
S.D 51 7.5106
7

-
0.2580
Beta 7
 5.6633
Alpha 34
Systematic 12.984
Risk 08
Unsystemat 203.00
ic Risk 96

GREENPLY
Clsoing
Date price Re(y) nifty Rm(X) x2 xy Re-Re> (Re-Re>)2
3033.
49.15 45
- - -
3.153611 2766. 8.7952 77.356706 27.736 7.502616 56.28924
January 50.7 394 65 7 05 9 116 858
- - -
Februar 4.240631 2674. 3.3271 11.069783 14.109 14.89685 221.9163
y 48.55 164 6 3 9 12 867 983
- - -
1.132852 3060. 14.422 208.01477 16.338 11.78908 138.9824
March 48 729 35 72 77 8 024 129
- - -
4.270833 19.398 376.28659 82.846 14.92706 222.8171
April 45.95 333 3654 11 63 1 084 454
37.10554 4529. 23.970 574.60839 889.45 26.44932 699.5666
May 63 951 9 99 49 68 2 343
- -
85.87301 4340. 4.1722 17.407899 358.28 75.21678 5657.565
June 117.1 587 9 8 82 6 836 252
- -
11.74210 4711. 8.5350 72.847870 - 22.39832 501.6851
July 103.35 077 4 96 7 100.22 828 096
- -
36.23609 4625. 1.8264 3.3358137 66.182 25.57986 654.3294
August 140.8 095 35 2 47 4 344 138
- - -
Septem 8.487215 5083. 9.9030 98.070089 84.049 19.14344 366.4714
ber 128.85 909 4 34 63 2 342 259
- - -
10.51610 4563. 10.219 104.43895 107.46 21.17233 448.2676
October 115.3 4 9 5 91 97 151 214
Novem 104.1 - 5122 12.228 149.53808 - - 414.9376
 9.713790 118.78 20.37001
ber 113 58 17 6 762 179
Decemb 15.60999 5232. 2.1515 4.6289665 33.584 4.953762 24.53976
er 120.35 039 2 03 32 95 885 672

127.8747 62.269 1697.6039 190.17 9407.368

Total 301 4 4 54 047
10.65622 5.1891 855.2152
Avg 751 16 Variance 77
S.D 11.6646

-
1.4133
Beta 2
17.990
Alpha 13
Systematic 389.41
Risk 56
Unsystamat 465.79
ic Risk 97

KITPLY
Closing
Date price Re(y) nifty Rm(X) x2 xy Re-Re> (R
3033.
4.7 45
- -
12.97872 2766. 8.7952 77.356706 114.15 7.552097 5
January 5.31 34 65 7 05 1 809
- -
17.32580 2674. 3.3271 11.069783 57.645 11.89917 1
February 6.23 038 6 3 9 2 478
-
2.086677 3060. 14.422 208.01477 30.095 3.339948 1
March 6.36 368 35 72 77 56 228
- - -
13.05031 19.398 376.28659 253.15 18.47694 3
April 5.53 447 3654 11 63 1 006
-
0.542495 4529. 23.970 574.60839 13.004 4.884130 2
May 5.56 479 9 99 49 15 116
June 7.79 40.10791 4340. - 17.407899 - 34.68128 1
367 9 4.1722 82 167.34 807
 8 1
- -
15.91784 4711. 8.5350 72.847870 - 21.34446 4
July 6.55 339 4 96 7 135.86 898
- -
22.13740 4625. 1.8264 3.3358137 40.432 16.71077 2
August 8 458 35 2 47 2 898
- -
5083. 9.9030 98.070089 55.704 11.05162 1
September 7.55 -5.625 4 34 63 6 56
-
15.89403 4563. 10.219 104.43895 - 10.46741 1
October 8.75 974 9 5 91 162.43 414
-
0.571428 12.228 149.53808 6.9877 4.855197 2
November 8.8 571 5122 58 17 58 024
- - -
11.93181 5232. 2.1515 4.6289665 25.671 17.35844 3
December 7.75 818 2 03 32 3 378

65.11950 62.269 1697.6039 3

Total 715 4 4 -962.3
5.426625 5.1891 2
Avg 596 16 Variance

-
0.9459
Beta 7
10.335
Alpha 36
Systemetic 174.45
Risk 4
Unsystemti 104.56
c Risk 91