Financial Management - I

SLFI501

Assignment
Companies Selected
Mahindra & Mahindra Financial Services Limited
Hindustan Unilever Limited

Name Seat No. Enrollment No.

xxxxxx xx Xxxxxxxx
E-Mail - xxxxxxxx
Contact No. - xxxxxxx

Faculty -xxxxxxx
 Mahindra & Mahindra Financial Services Limited (C1)

Year Average Daily Return Annualised Return Average Daily Stdev Annualised Stdev
2015 0.002816725 -0.70 2.200239626 34.78884308
2016 0.13789082 -2.260382563 2.342521962 37.03852435
2017 0.180392373 -0.319490356 2.116958235 33.47204867
2018 0.005141721 -0.491388713 2.508397846 39.66125236
2019 -0.364571771 -2.405218287 3.472520302 54.90536688

Average Daily Variance Annualised Variance

4.841054412 1210.263603
5.487409145 1371.852286
4.481512168 1120.378042
6.292059755 1573.014939
12.05839725 3014.599313

The above table is extracted from the Mahindra & Mahindra Financial Services Limited excel file.
We observe that higher the risk, higher is the return. Mahindra & Mahindra Financial Services
Limited when compared to the market is showing a higher return and thus is associated with a higher
risk. Hence it is recommended to invest in Mahindra & Mahindra Financial Services Limited.

Hindustan Unilever Limited (C2)

Year Average Daily Return Annualised Return Average Daily Stdev Annualised Stdev
2015 0.011764645 (0.69133358) 1.426751667 22.55892462
2016 0.032269872 1.898567398 1.094423024 17.30434739
2017 0.168672249 -0.736211708 1.107672913 17.51384653
2018 0.10828237 -0.739048044 1.313998009 20.77613275
2019 0.148732808 14.00355313 1.912185394 30.23430577

Average Daily Variance Annualised Variance

2.03562032 508.90508
1.197761755 299.4404387
1.226939281 306.7348203
1.726590768 431.6476921
3.656452982 914.1132454
The above table is extracted from the Hindustan Unilever excel file. We observe that higher the risk,
higher is the return. Hindustan Unilever when compared to the market is showing a higher return and
thus is associated with a higher risk. Hence it is recommended to invest in Hindustan Unilever.
 Sensex (BSE) (Index)
Year Average Daily Return Annualised Return Average Daily Stdev Annualised Stdev
(1.9790427
2015 -0.039626889 6) 1.082055083 17.10879307
2016 0.058603559 -1.219234115 0.739784318 11.69701712
2017 0.062143288 -2.472664108 0.629333232 9.950632097
2018 0.053337572 -0.790832558 0.773829228 12.2353144
2019 -0.097866343 7.717894821 1.797410687 28.41955831

Average Daily Variance Annualised Variance

1.170843202 292.7108004
0.547280838 136.8202095
0.396060316 99.01507912
0.598811674 149.7029185
3.230685179 807.6712948

Correlation

Year Correl - C1,C2 Correl - C1, Index Correl - C2, Index Cova - C1,C2
2015 0.31479656 0.541587116 0.445340392 0.987013124
2016 0.192896686 0.471925883 0.443450116 0.501501789
2017 0.087581572 0.373789671 0.429446755 0.20561624
2018 0.243060491 0.605476996 0.433938009 0.804562712
2019 0.456842087 0.736549193 0.605921844 2.982835727

The correlation coefficient is measured on a scale from -1 to 1. A correlation coefficient of 1

indicates a perfect positive correlation between the prices of two stocks, meaning the stocks always
move the same direction by the same amount. A coefficient of -1 indicates a perfect negative
correlation, meaning that the stocks have historically always moved in the opposite direction. If two
stocks have a correlation coefficient of 0, it means there is no correlation and, therefore, no
relationship between the stocks. It is unusual to have either a perfect positive or negative correlation.

Minimum Variance Portfolio Return and Risk - C1 and C2

A minimum variance portfolio indicates a well-diversified portfolio that consists of individually
risky assets, which are hedged when traded together, resulting in the lowest possible risk for the rate
of expected return.
Year Weight of C1 Weight of C2 Return
2015 50% 50% 0.007290685
2016 50% 50% 0.085080346
2017 50% 50% 0.174532311
2018 50% 50% 0.056712045
2019 50% 50% -0.107919482

Variance Risk
1.876566963 1.369878448
1.767741068 1.32956424
1.470903648 1.212808166
2.126192876 1.458147069
4.157133602 2.038905001

Minimum Variance Portfolio Return and Risk - C1 and Index

A minimum variance portfolio indicates a well-diversified portfolio that consists of individually
risky assets, which are hedged when traded together, resulting in the lowest possible risk for the rate
of expected return.

Year Weight of C1 Weight of Index Return

2015 50% 50% -0.013931122
2016 50% 50% 0.045436716
2017 50% 50% 0.115407768
2018 50% 50% 0.080809971
2019 50% 50% 0.025433232

Variance Risk
1.05161588 1.025483242
0.686260648 0.828408503
0.655749899 0.80978386
0.831350611 0.9117843
1.97178454 1.404202457
Minimum Variance Portfolio Return and Risk - C2 and Index
A minimum variance portfolio indicates a well-diversified portfolio that consists of individually
risky assets, which are hedged when traded together, resulting in the lowest possible risk for the rate
of expected return.

Year Weight of C2 Weight of Index Return

2015 50% 50% 0.076634899
2016 50% 50% 0.073092566
2017 50% 50% 0.152601889
2018 50% 50% 0.25508983
2019 50% 50% -0.048933171

Variance Risk
0.5427108 0.73668908
0.386820209 0.621948719
0.349015079 0.590774982
0.399702919 0.632220625
1.057671295 1.028431473

Beta is a measure of a stock's volatility in relation to the overall market. A stock that swings more
than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta
is less than 1.0. High-beta stocks are supposed to be riskier but provide higher return potential; low-
beta stocks pose less risk but also lower returns.

Alpha represents the performance of a portfolio relative to a benchmark, it is often considered to

represent the value that a portfolio manager adds to or subtracts from a fund's return.

Company Beta Alpha

M&M. 1.44 -2.70
HUL. 0.65 2.07

Expected Return with CAPM

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk
and expected return for assets, particularly stocks. CAPM is widely used throughout finance for
pricing risky securities and generating expected returns for assets given the risk of those assets
and cost of capital.
ERi=Rf+βi(ERm−Rf)
Where:
ERi=expected return of investment
Rf=risk-free rate
βi=beta of the investment
(ERm−Rf)=market risk premium

Year C1 C2
2015 -2.745943916 2.195147019
2016 -2.551437219 2.208475417
2017 -2.490234983 2.297136962
2018 -2.742595922 2.25788354
2019 -3.27498335 2.284176325

Conclusion -

For, Mahindra & Mahindra Financial Services Limited

From the above calculations we have observed the following:
A beta of more than 1 means it tends to be more volatile than the market.
A negative alpha indicates the security fails to generate returns at the same rate as
the broader sector

For, Hindustan Unilever Limited

From the above calculations we have observed the following:
A beta of less than 1 means it tends to be less volatile than the market.
A positive alpha indicates the security is outperforming the market