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Portfolio Report - Research Paper Example

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This paper will present the result of the analysis on the two portfolios with two shares each, having data from FTSE 100. The first portfolio, A, include shares from the same sector i.e. Next and M&S. While the other portfolio, B, include shares from different sectors i.e…
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Portfolio Report
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The average return of M&S is 2.53% which is greater than Next which only has 1.61%, this means that there is greater return on investment on M&S than Next. The correlation of returns of 53.08% indicated that there is positive relationship between the two shares. Portfolio A's variance are very low, with 0.68% to Next and 0.95% to M&S, which means that there are lesser failure in achieving greater returns from these shares. The scatter diagram and the line graph clearly depicted the close relationship between the two shares.

Given that they came from the same sector, the risk and the return for investment are somewhat the same. Table 2 present the important indicators of Thomas Cook and Alliance Trust. Indicators include Average return, variance of returns, standard deviation of returns, covariance of returns and correlation returns. The average return of Thomas Cook is 50.45% which is greater than Alliance Trust which only has 22.16%, this means that there is greater return on investment on M&S than Next. The correlation of returns of -3.

10%, which indicates that there is negatively low relationship between the two shares. Portfolio B's variance are very high, with 927.32 % to Thomas Cook and 160.42% to Alliance Trust, which means that there are greater risk of failure in achieving greater returns from these shares. The scatter diagram and the line graph clearly depicted tha. The correlation of returns of -3.10%, which indicates that there is negatively low relationship between the two shares. Portfolio B's variance are very high, with 927.

32 % to Thomas Cook and 160.42% to Alliance Trust, which means that there are greater risk of failure in achieving greater returns from these shares. The scatter diagram and the line graph clearly depicted that there is no relationship between the two shares. Given that they came from different sector, the risk and the return for investment are not the same.III. CONCLUSION AND RECOMMENDATIONThe concept of diversification in investing was done in this paper, with the aim of selecting a collection of investment assets that has collectively lower risk than any individual asset.

This is possible, in theory, because different types of assets often change in value in opposite ways. For example, when the prices in the stock market fall, the 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.The results indicated that the investor should invest in Portfolio A, since it yielded a positive correlation of return and less variance. Portfolio A has maximized the return and minimized risk, which made it the best

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