SAPM assignment

Virtual Stock-Tracking Initial Report

Submitted by:
SUMIT AGARWAL 12PGP099

Q2) Repeat the previous question using the weekly equity returns from your Stock-Track reports and the weekly Nifty Index. Discuss the difference that makes in your decisions if you consider the weekly return. Beta Daily Beta Weekly Beta Week 1 Week 2 Week 3 Week 4 0.89545 1.35660 0.80199 0.76284 0.96562

As can be seen in the table, the beta for the first week is quite dis-proportionate but for the other weeks is in line with the target beta of 0.83. First week can be attributed to start on Tuesday rather than on Monday, and on Monday generally the market rise due to weekend effects. The stocks in the first week rose more than the market. 3) Calculate the standard deviation of your weekly portfolio returns and compare them to the nifty index. Was the total risk of your portfolio more than or less than the nifty index? The standard deviation and the total risk are mentioned below in the table. Standard Deviation Standard Deviation Portfolio Standard Deviation Index 0.02905475 0.02136196 0.02036389 0.02035525 0.02583860 0.02346119 0.02116879 0.02157119 0.046296% 0.039155%

Week 1 Week 2 Week 3 Week 4 Total Risk

If we have a look at the standard deviation and the total risk for both the portfolio and the Index, we see that they are almost the same week by week basis and also in total risk with just a difference of 0.007%. This means that the portfolio performed very much in line with the market.

4).Using weekly portfolio returns for your portfolio and the nifty index, compare the two on a riskadjusted basis. You will calculate the total holding period returns, the Sharpe Index, and Treynor ratio for both portfolios. Which did better? Use 7% as the annual risk free rate or 0.1458% weekly. Portfolio Week 1 Holding Period Return Treynor Ratio Sharpe Index 2% 0.015891989 0.742015136

Week 2 Week 3 Week 4 Index Week 1 Week 2 Week 3 Week 4

1.8% 1.73% 2.38%

0.020898902 0.020775541 0.023089704

0.823059491 0.613364431 1.053239089

Holding Period Return Treynor Ratio Sharpe Index 1% 0.013526073 0.633185038 1% 0.003956851 0.19438968 3.49% 0.033469485 1.426589518 2.40% 0.022553342 1.045530662

If we compare the portfolio with the index we can see that the overall return is rather the same for both. However, there are weekly variations for e.x the portfolio performed better in the 1st and 2nd week, while the market did better with double the rise of portfolio in the 3rd week. With regards to the Treynor Ratio, again the performance is almost the same in the 1st and 4th week. The 2nd and 3rd week make up for each other in the difference. Hence, we cannot say anything about the portfolio outperforming the market or not in terms of systematic risk. For Sharpe index, we can clearly see, in 2 weeks the portfolio did better than the market while the market did better than the portfolio in 1 week. 5). Do you feel that the amount of risk that you took, and the strategies you took, were appropriate for your client given the target beta that you were given? (Note: this has nothing to do with whether or not your actual beta was near the target.) If this was your own real money, would you feel comfortable trading as you did this period? My target beta was 0.83 Market Return during the period was 8.148% while the portfolio return during the period was 8.485% which means that the portfolio was in line with the target beta considering the transaction cost and manpower cost in tracking. While the highest return did once go over 10.36% I followed more of the Price Momentum Strategy in which the stock that was doing well in the past month or week, I considered that particular stock. Also, in some cases I followed the Contrarian Strategy as in case of ONGC. But all these strategies were backed up by the news prevailing in the market. 6) What specific steps did you take during the period to attempt to adjust your portfolio beta to better achieve your target? How successful were these steps? I adjusted my portfolio beta according to the market scenario and the need of the hour. Some stocks of specific industry like the IT sector due to rupee depreciating wrt dollar added a boost to the IT stocks. So I purchased these stocks to boost my portfolio. I also concentrated more on Pharma sector which has been doing well and it gave me a huge profit.

Also stocks like Sesa Goa which has been doing well recently, following the Price Momentum Strategy, it gave my portfolio a huge boost. 7) Did you learn anything about short-term trading? Trading on news? Yes, I learnt a lot about short term trading and trading on news. I did these for few stocks for example Ranbaxy and Sesa Goa. These stocks would rise and fall on alternative days. So I purchased them in the morning while sold them at the end of the day using intraday trading for them. Also news like rupee depreciating and Raghuram Rajans speech after his appointment as RBI Governor had huge impacts on IT Stocks and banking stocks respectively.

8) If you had it to do all over again, would you change your investment strategy in any way? If not, why? If yes, how? Yes, I will change my investment strategy that I adapted at the beginning of my purchase of stocks. At the beginning I purchased those stocks in my portfolio which did well in the last one year but at the later stage I changed my strategy by purchasing those stocks which did well in the last one month and last one weeks. These stocks with Price Momentum effect give better return than the stocks which had done better last year. 9) Did you feel that the use of Stock-Track substantially increased your understanding of portfolio management as compared to a class in which your only exposure would have been in a lecture? Would you recommend that Stock-Track be used in future sections of SAPM? Yes I feel that the use of Stock Track substantially increased my understanding of portfolio management as compared to a class in which my only exposure had been in a lecture. Yes I would recommend that Stock Track should be used in future sections of SAPM because during class lectures we learn how to judge a stock based on past records; however Stock Track gives us the actual feel how a stock behaves under the effect of systematic and un-systematic risks. The effect of recent happenings on the stock as well as on the market, impact the share price to the highest extent. This is outdone by the past study that we do. Past study gives us the range of stock fluctuations while the news gives us the direction (+ve or ve) of stock fluctuation.