Title: - Risk, Return and Cost of Equity Estimation (FM Assignment)

Name: Aditya Thakur

Guard Industries Ltd

Companies analysed: Trent Ltd, V

Sec: B
Roll No: 2016067
Risk, Return and Portfolio analysis of Trent Ltd
Trent Ltd is retail arm of the Tata Group. It is listed in company in NSE and BSE.
The data of adjusted closing price of NSE is taken for the analysis. This data is
taken on monthly basis i.e from 31st Dec 2011 to 31st Dec 2016. Then the return
for the same has been calculated. The mean return for period is 2% and standard
deviation (risk) is 8.96%. These values are annualised as 21.4 % and 31.04%
respectively.
Nifty as the market index has been taken as for further analysis. The data is
taken from 31st Dec 2011 to 31st Dec 2016. The monthly return is 1.03% and risk
is 4.37%. These values are annualised as 13.05% and 15.14% respectively.
Beta and Expected Return calculation of Trent Ltd
The covariance for the company and market is calculated as 0.142%. By dividing
the covariance with the variance of the market, the Beta value for Trent Ltd is
obtained as 6.213%. Then, the risk free return rate is taken as 6.8%. Market risk
i.e CAGR is calculated as 11.83%. Now, taking three values of Beta, market
return and risk free return and finally putting it in the CAPM model, the expected
return of Trent LTD is as 7.11%.
Portfolio for Trent Ltd and V Guard Industries Ltd
Finally ten different combinations of investment for both the companies have
been taken. V Guard Industries Ltd is taken as the second company for my
portfolio. V Guard Industries Ltd belongs to different sector from Trent Ltd. I have
calculated individual risk and return for both the companies taking five year
monthly data.

Risk and return for different Weightage

Trent(Weighta
ge)

V
Guard(Weightage
)

0.10

0.90

0.135511865

36.81%

0.20

0.80

0.110727817

33.28%

0.30

0.70

0.091052083

30.17%

0.40

0.60

0.076484664

27.66%

Variance of
Portfolio

Risk

Retur
n
68.20
%
63.01
%
57.81
%
52.61
%

0.50

0.50

0.06702556

25.89%

0.60

0.40

0.06267477

25.03%

0.70

0.30

0.063432295

25.19%

0.80

0.20

0.069298134

26.32%

0.90

0.10

0.080272288

28.33%

47.42
%
42.22
%
37.02
%
31.82
%
26.63
%

After calculating and analysing the different combinations of return and risk for
the portfolio, it is found that minimum variance occurs at 63.52% investment of
Trent Ltd. Graph between return and risk has been plotted:-

Return VS Risk
80.00%
60.00%
Return

40.00%
20.00%
0.00%
24.00% 26.00% 28.00% 30.00% 32.00% 34.00% 36.00% 38.00%
Risk