A Project On Risk Return Analysis

Financial Management – I
Semester - I

Submitted By:

NAME – Parika Khanna

Section – G Seat NO. - 90
Mobile Number – 8284052900
Enrollment Number - 21BSPHH01C0815
E-Mail ID – parika.khanna21h@ibsindia.org
 About The Project:- Calculation of risk and return analysis of two companies .
Calculated results presented in tables along with explanation. Calculation of bet, MVP
and expected return supported by graphs and drawn conclusions.

Table 1
Name of the Name of
Industry Segment
S.NO Company S.NO the Index
Karnataka
Public NIFTY
Bank Banking
1 Sector 1 BANK
Limited Operations
Bank
Punjab & Public
Banking
2 Sind Bank Sector
Operations
Bank

COMPANY 1 :- Karnataka Bank Limited is India's twelfth largest private sector bank. Traded as
BSE: 532652 NSE: KTKBANK. It was founded on 18 February 1924; 97 years ago, Headquarters is
in Mangaluru, Karnataka, India. Karnataka Bank Limited has adopted Core banking, Internet banking
and has established its "MoneyPlant" system across the country.

Karnataka Bank Limited, has operationalized its wholly owned non-financial subsidiary ‘KBL
Services Limited’ w.e.f 30.03.2021. The KBL Services Ltd is having its Registered & Head Office at
Bengaluru.

Shri Mahabaleshwara M.S, Managing Director & CEO of Karnataka Bank Limited, is the Non
Executive Chairman of KBL Services Limited while Shri Manjunatha Bhat B.K, is the Chief
Executive . With this new entity, Karnataka Bank Limited is taking a big step in re-aligning its
business strategy with the objectives of improving efficiency and achieve better results and valuation
in the long run. By moving some of the non-financial operations of the Bank like Management of
alternate banking channels, Back-end processing activities, IT project & support, Digital capabilities,
Business Sourcing, Contact Center Management etc. to the subsidiary in a phased manner, Karnataka
Bank Limited will have a renewed focus on its core Banking business.
 Returns

10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1 11 21 31 41 51 61 71 81 91 101111121131141151161171181191201211221231241
-2.00%
-4.00%
-6.00%
-8.00%

ANALYSIS
Table 2
Karnataka Bank
Limited

Average
Annualized Average Daily Annualized
Daily
Year Return Stdev Stdev
Return
-0.01% -3.24% 2.60% 40.76%
2016
0.14% 65.01% 2.00% 38.25%
2017
-0.11% -32.79% 2.11% 40.37%
2018
-0.17% -45.60% 1.93% 36.85%
2019

2020 -0.05% -16.72% 2.83% 54.11%

Interpretation:- A positive return means the stock has grown in value, while a
negative return means it has lost value. In daily return series buying of shares is done
on present day and selling next day. Overall -0.20% loss in case of C1. There is no
particular pattern in return graph series, which shows the market volatility. The returns
reflects less demand of company’s share in the market.

COMPANY 2 :- Punjab & Sind Bank is an Indian nationalised bank. It is under the ownership of
Ministry of Finance , Government of India with its Head Office located in New Delhi. As on 31
March 2020, the bank has 1526 branches which are widely spread across India, out of which 635
branches are in Punjab state. The bank has 25 Zonal Offices located all over India.

The bank was established in Amritsar on 24 June 1908 by Bhai Vir Singh, Sir Sunder Singh Majitha,
and Sardar Tarlochan Singh. It is Nationalised Bank, Traded as BSE: 533295 NSE: PSB. It is type of
Industry Banking that provide Financial services. It was founded on 24 June 1908; 113 years ago. In
FY 2019-20 Punjab & Sind Bank recorded a Net Loss of Rs.990.80 crore. Total business of the bank
stood at Rs. 1,52,231.75 crore. The Net Worth of the bank stood at Rs. 2917 crore as on 31.03.2020.
Total Income of the bank during the year stood at Rs 8827 crore. On 16 July 2019, Punjab & Sind
Bank disclosed that it detected a fraud, worth ₹238 crore (US$33 million) by the Bhushan Power &
Steel Limited.
Table 3
Punjab & Sind
Bank

Average
Annualize Average Annualize
Daily
Year d Return Daily Stdev d Stdev
Return
0.09% 38.42% 2.01% 38.31%
2016
 0.04% 13.67% 2.12% 40.43%
2017
-0.13% -38.14% 2.38% 45.55%
2018
-0.14% -40.52% 2.91% 55.68%
2019
-0.13% -37.26% 3.11% 59.48%
2020

Interpretation:- Standard Deviation is measure of market volatility (risk). Greater the SD, risker the
stock and vice-versa. In C2 on an average SD is 12.53% which is higher as compare to C1 (11.47%).
Resulting higher level of risk involvement for investors. The attitude towards risk also determine
investment choice, if he/she is risk-loving then they may add in some high yield bonds.

Market
NIFTY BANK
Index

Average Daily Annualized Average Annualized

Year Return Return Daily Stdev Stdev

0.03% 13.31% 1.27% 24.19%

2016
0.15% 69.94% 0.77% 14.75%
2017
0.03% 12.92% 0.96% 18.41%
2018
 0.07% 30.82% 1.26% 24.11%
2019
60

0.03% 10.38% 2.72% 51.92%

2020
50

40 Table 4

30

20

10

0
0 5000... 10000... 15000... 20000... 25000... 30000...

-10

-20

Interpretation:- Overall gain of 0.31% with lower rate of risk (6.98%) as compare to
C1 and C2, make it suitable for investing.

Table 5 : Correlations
Year Correl - C1,C2 Correl - C1, Index Correl - C2, Index

2016 40.94% 51.45% 50.41%

2017 29.33% 39.53% 45.73%

2018 36.61% 51.97% 26.41%

2019 31.33% 55.47% 35.41%

2020 52.39% 59.68% 44.18%

Interpretation:- Correlation describes respective price movement between two stocks.
A positive correlation shows both stocks moves in the same direction. The relationship
among C1,C2 and market index is positive as they are related to banking industry.
Stocks in same industry would have high positive correlation as they will affect by
same events.

Table 6

Minimum Variance Portfolio Return and Risk - C1 and C2

Year Weight of C1 Weight of C2 Return Risk
71.16% 26.42%
28.84% 1.86%
2016

53.91% 46.09% 41.34%

1.65%
2017

59.43% 40.57% -34.96%

1.84%
2018

77.45% 22.55% -44.45%

1.81%
2019

40.15% -42.25%
59.85% 2.57%
2020

-53.90% 9.73%
TOTAL

Minimum Variance Portfolio Return and Risk - C1 and Index

Year Weight of C1 Weight of Index Return Risk
-1.87% 101.87% 13.62% 1.26%
2016
 -0.45% 100.45% 69.96%
0.77%
2017

-3.95% 103.95% 14.72%

0.96%
2018

9.26% 90.74% 23.74%

1.25%
2019

44.87% 55.13% -1.78%

2.47%
2020

120.26% 6.71%
TOTAL
Interpretation:- MVP method helps to maximize returns and minimize risk. Portfolio
1 has negative return and higher risk. Therefore not efficient.
0

0
0 50 100 150 200 250 300

Table 7
Interpretation:- Portfolio 2 is the most efficient portfolio as it gives the highest return
for the lowest level of risk.

Minimum Variance Portfolio Return and Risk - C2 and Index

Year Weight of C2 Weight of Index Return Risk
2016 89.46 10.54 35.77% 1.86%

2017 104.22% -4.22 11.29% 2.19%

2018 94.04 5.96 -35.09% 2.25%

2019 96.12 3.88 -37.75% 2.81%

2020 62.02 37.98 -19.16% 2.55%

TOTAL -44.94% 11.66%

Table 8

Interpretation:- Portfolio 3 has negative return and highest risk. Therefore, not
efficient.

|
Table 9

Beta
Year C1 C2

2016 1.058 0.798

2017 1.025 1.253

2018 1.139 0.653

2019 0.848 0.818

2020 0.622 0.506

Interpretation:- A beta greater than 1.0 suggest that the stock is more volatile than
the broader market, and a beta less than 1.0 indicates a stock with lower volatility. Beta
is measure of volatility. In stats beta represents the slope of line through market data
points, these points represent stock return against market as whole.
 15

10

0
0 f(x) = 0 x + 5000...
0 10000... 15000... 20000... 25000... 30000...
R² = 0

-1

Table 10
Expected Return using CAPM
Year C1 C2
2016 -39.87% 156.63%

2017 50.80% -141.48%

2018 -124.48% 191.78%

2019 56.34% 80.70%

2020 225.84% 289.80%

Interpretation:- Capital asset pricing model describes relationship between risk

and expected return.
Conclusion:- The risk-return analysis of companies helped in understanding the
concept by the end following were the learning outcomes:-

 Understanding and calculating Beta.

 Briefly explained average return and standard deviation.
 Understanding significance of MVP.
 Picking possible combinations from investor point of view.
 Calculate portfolio risk where there is positive correlation between returns.