Project on: Stock and Portfolios analysis for 12 stocks traded in the DSE

Submitted to:
Mr. Mokhdum Morshed
Senior lecturer
Department of Accounting and Finance

Submitted by:
NISHAT TAHIAT LABONNO 1631107630
FARIHA SHIKDER ELVY 1620948630
TAJRIN BINTE ALAM 1631790630

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Letter of Transmittal

19th May, 2021

Mokhdum Morshed,

Senior Lecturer,

Department of Accounting and Finance

North South University

Subject: Submission of Final Project of FIN435.

Dear Sir,

It has been a wonderful learning experience for us with you as we submit our project on 12 stocks analysis
that are traded in DSE as assigned in the Fin435 course.

We believe that, working on this project will enabled us to better understand all that we have learned in this
course and also utilize this experience in our upcoming financial analysis needs. We tried our best to
evaluate the possible outcomes according to our capabilities and hope that we have been able to reach your
expectations. We want to thank you for giving us the opportunity to work on this project.

We hope that, you will be satisfied with our report and for any kind of query we will be present at your
convenience.

Sincerely

NISHAT TAHIAT LABONNO 1631107630

FARIHA SHIKDER ELVY 1620948630
TAJRIN BINTE ALAM 1631790630

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Acknowledgement
We are charmed and respected to have to have Mr. Mokhdum Morshed Sir as our guide. We will
reliably be committed to him for his basic heading and advice that arranged and aided us
unimaginably to execute this task with sheer productivity. Along these lines, we may need to
offer thanks toward him for his extraordinary effort that he has put on our new development. We
should convey our actual appreciation to the division of Bookkeeping and Finance of North
South University for presenting this strong and in general orchestrated course and outfitting us
with the workplaces that in a general sense assisted us with accomplishing this adventure in a
created way. All in all, we should convey our thankfulness to every individual who helped us
clearly by suggestion for the completing of this report.

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Table of Contents
Acknowledgement ........................................................................................................................................ 3
Executive Summary....................................................................................................................................... 5
Introduction .................................................................................................................................................. 6
1. IPDC Finance Limited ............................................................................................................................ 6
2. Apex Foods ............................................................................................................................................ 6
3. Brac Bank .............................................................................................................................................. 7
4. Aramit Cement LTD ............................................................................................................................... 7
5. FU-WANG Ceramics: ............................................................................................................................. 7
6. Aftab Automobiles ............................................................................................................................... 8
7. Dhaka Electric Supply Co. Ltd. ............................................................................................................... 8
8. Delta Life Insurance Company Limited ................................................................................................. 9
9. Aamra technologies limited: ................................................................................................................. 9
10. Jute Spinners ..................................................................................................................................... 10
11. Bashundhara Paper Mills Limited ..................................................................................................... 10
12. Bangladesh Export Import Company Ltd: ......................................................................................... 10
Overview of Modern portfolio Principal and asset pricing model .............................................................. 11
Asset Pricing Model: ................................................................................................................................... 12
Finding and Analysis .................................................................................................................................... 12
Analysis of Geometric mean return, standard deviation and coefficient of variation ............................... 13
Portfolio Risk and Return: ........................................................................................................................... 14
Analysis of Calculated Beta ......................................................................................................................... 16
Reasons for Beta Variation ......................................................................................................................... 17
Required Return Analysis of Each Stock Based on CAPM ........................................................................... 18
Best 5 Stocks Based On the Analysis ........................................................................................................... 19
Best 5 Portfolios Based On the Analysis ..................................................................................................... 20
Limitation of The Project............................................................................................................................. 22
Recommendation........................................................................................................................................ 22
Conclusion ................................................................................................................................................... 23
References .................................................................................................................................................. 24

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Executive Summary
This report has been founded on 12 stocks chose from Dhaka Stock Exchange Market thatconsists
of different industries. They are: Brac Bank, (Bank sector); Apex Food Industries, (Food and
Allied); Aramit Cement LTD. (Cement industry); Fu-Wang Ceramic Industry LTD. (Ceramic
industry); Aftab Automobiles (Engineering industry); Dhaka Electric Supply Company Ltd (Fuel
& Power Sector); Delta Life Insurance (Insurance Sector); Aamra technologies limited (IT Sector);
Jute Spinners (Jute Sector); Bashundhara Paper Mills Limited (Paper & Printing); Bangladesh
Export Import Company Ltd. ( Miscellaneous Sector); IPDC Finance Limited (Financial Sector).
These stocks’ trading price from 1st January 2019 to 31st March 2021. We have Calculate their
daily holding period return based on closing price. We also calculated the geometric mean return
and standard deviation of each stock and DSEX. We tried to figure out the correlation coefficient
and covariance of our selected stocks with each other and also with DSEX based on Markowitz
model. After that we had find out the portfolio risk and return by using different combinations of
the eight stocks. We have drawn an efficient frontier. We tried to find out all the attainable and
desirable sets of portfolios based on the efficient frontier. After all we analyzed the performance
of those efficient portfolios based on return & risk adjusted return and select the most desirable
portfolio based on this analysis. Then again, possible investment recommendations have been
given dependent on the kinds of financial backer and their goal from the venture even in this
bearish market. (Hering et al., 2009)

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Introduction
In the course Fin435 we are allocated to choose 12 stocks from the Dhaka stock trade market
dependent on these businesses: Bank, Food and unified, Ceramics, Cement, designing, protection,
fual and force, paper and printing, incidental, IT, jute and, Non-Bank Financial Institutions. The
picked organizations from the enrolled businesses depend on explicit measures that are talked
about in the later piece of the report. The explanation for this report is to make a portfolio that
offers the best return alongside the related danger dependent on the most recent 27 months (from
first January to 31st March 2021) information. This portfolio is assembled dependent on the
Markowitz Model that demonstrates the main 5 stocks to be looked over the 12 stocks. The main
5 stocks are picked after the investigation of each stock's danger return, execution pattern standard
deviation of each stock & their required rate of return and the indication from the efficient frontier.

1. IPDC Finance Limited

IPDC account restricted was set up in 1981 as the primary private area monetary organization of
the country. It was distinguished by International finance corporation, [CITATION IPD17 \l 1033
USA] , Germany investment and Development Company, Germany, The Aga Khan fund,
Switzerland, Bangladesh government, etc. they have gradually developed in industrial landscapes
and partnered with many renowned corporations of Bangladesh. Their current shareholder are:
Government of Peoples’ Republic of Bangladesh (21.87%), BRAC (25%), Ayesha Abed
foundation (10%), RSA capital limited (5%), Blue-chip securities limited (8.03%), Institution
(18.77%), Foreign (2.84%) and general public shareholders (8.46%). (INVESTOR RELATIONS, n.d.)

2. Apex Foods
AFL was incorporated in 1979 under Companies Act 1913 [ CITATION Ape19 \l 1033]. They are
perhaps the biggest processor and exporter for fish in Bangladesh and furthermore 100% export-
oriented shrimp processing company. They are equipped with the latest processor, freezer and
storage machineries. Their high-quality products have provided them recognition internationally
in the seafood market but also, they have built a blue-chip customer base. They strictly follow
HACCP based quality. They export to North America, EU countries, Australia and Russia.
According to December 2019, the company’s shareholdings are divided among: Sponsor and
Director (38.96%), Institution (5.21%) and General shareholder (55.83%). (Apex Foods Limited -
Welcome to Apex Foods Limited, n.d.)

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3. Brac Bank
An organization known by its performance driven measures and the core of each activity rely on values [
CITATION Abo19 \l 1033]. Its fundamental center is to give answers for the unbanked little and medium
endeavors, propelled by its parent association BRAC. It focused on the SMEs' particularly to grassroots
these ventures to a conventional financial help under one umbrella. Their excursion dislike some other
ordinary banks but instead dependent on the acknowledgment that a ton of SMEs were ignored which
required consideration as well. For these SMEs' further development lift and making of work BRAC Bank
ventured forward in 2001. (Brac Bank, 2019)

4. Aramit Cement LTD

Aramit Cement Limited is a sister worry of Aramit Group, one of the country's striking structure
material assembling bunch from Bangladesh. The affiliation has their operational premises at
Kalurghat Heavy Industrial Estate, Mohora, Chittagong, Bangladesh. Setting up itself as a Public
Limited Company nineteenth August, 1995, the association has now the satisfied instance of
holding more than BDT 500 million in capital figuratively speaking. With the development of new
creation units on January 2017, indisputably the yearly creation limit is 612,000 Metric Tons. The
demonstration of serious courses of action and definite frameworks extended with the best of
unrefined materials imported from the first class hotspots for instance Iran, Thailand, China, Japan,
Indonesia and Vietnam, the Aramit Cement brand has sorted out some way to get the thought of
the clients because of the attributes of its quality.This stupendous accomplishment is the product
of work of our splendid groups from Laboratory, Production and Quality Controllers and R&D.
Since 2005, Aramit Cement’s Portland Slag Cement (PSC) and Ordinary Portland Cement (OPC,
43 Grade) is being exported to the Indian states of Tripura and Meghalaya while keeping up with
the compliance of the Bureau of Indian Standards (BIS). (Aramit Cement Ltd., n.d.)

5. FU-WANG Ceramics:

Fu-Wang Ceramic Industry Limited, the pioneer artistic producer in Bangladesh was set up in May
1995 as a joint endeavor organization. Accordingly, in 1998, it was recorded in the Dhaka and
Chittagong capital business sectors. From that point forward, it has been working as a public
restricted organization with an approved capital of Tk. 1 billion and a settled-up capital of Tk. 769
million. The organization is occupied with creation of different kinds of divider and floor tiles.
Inside a brief period, the business extended its portion of the overall industry by its special quality,
serious value, elite plans, and wide assortment of sizes and models. Its viable and innovative

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showcasing effort empowered the organization to set up its image esteem in the tiles market in
Bangladesh. Fu-Wang Ceramic Industry Limited is equipped for satisfying the expanding need of
clients countrywide. By utilizing great crude materials, Italian/Chinese hardware and exceptionally
experienced unfamiliar and neighborhood designs, the organization has made great standing in the
Bangladesh artistic market. The business is occupied with selling extravagant coated floor and
divider tiles, that are created by using the most recent printing and laser cut innovation. Fu-Wang
Ceramic Industry Limited satisfies European guidelines underway. With a moderate valuing
structure, the organization means to arrive at a huge private and business property advancement
market that is by and by encountering quick development in Bangladesh. The organization is
additionally sending out its items toward the North Eastern district of India. (Fu-Wang Ceramic
Industry Limited, n.d.)

6. Aftab Automobiles

Aftab Automobiles Limited (AAL), a sister worry of NAVANA Group, is a popular association
in auto advertising in Bangladesh. The solitary vehicles vehicle association gathering TOYOTA
Land Cruiser Prado, HINO Bus, HINO Mini Bus/Truck for Bangladesh market since 1981. It is
simply vehicle gathering association of the private territory in Bangladesh and tried out the Dhaka
Stock exchange 1987 and Chittagong stock exchange 1996. This is a forefront, versatile and the
best assembling plant in Bangladesh with yearly constraint of 1,200 units (per shift) of jeeps,
pickups, four-wheelers, minibuses’, more modest than anticipated trucks, transport, and truck
skeleton. Aftab Automobiles has auto battery (from little vehicles to huge Lorries, trucks,
transports and so forth) plus Ips and Ups. (Aftab Automobiles Limited – Aftab Automobiles Limited,
n.d.)

7. Dhaka Electric Supply Co. Ltd.

Dhaka Electric Supply Co. Ltd. (DESCO) is a Public Limited Company which circulates power at
the Northern pieces of Dhaka City Corporation territory. The organization was established on
November 3, 1996 as a Public Limited Company. The organization is presently under the Power
Division of the Bangladesh Ministry of Power, Energy and Mineral Resources of Bangladesh. Net
deals income - 1.91%; complete working income 0.59%. The organization all in all claimed by
Government of Bangladesh and DESA addressing government by securing 100% offers. The
Government of the People's Republic of Bangladesh has chosen to execute brilliant pre-installment

8
metering framework instead of old framework to work on the bill installment framework by
utilizing portable distributing, web, applications and so on DESCO previously changed 25%
works. Service has marked a MOU with Bangladesh Computer Council to foster online bill
installment framework and stepped up and foster absolute client care the board framework. (ঢাকা
ইলেক্ট্রিক সাপ্লাই ককাম্পাক্ট্রি ক্ট্রেক্ট্রিলেড (কডসলকা) - ঢাকা ইলেক্ট্রিক সাপ্লাই ককাম্পাক্ট্রি ক্ট্রেক্ট্রিলেড (কডসলকা),
2010)

8. Delta Life Insurance Company Limited

Delta Life Insurance Company Limited was consolidated in November 10, 1986 and is
predominantly occupied with Ordinary Life (OL), Group Insurance (GI), Health Insurance (HI)
business and non-conventional miniature protection business under the name of Gono-Grameen
Bima (GN-GRB). The Company is a traded on an open market Company and its offers are recorded
on the Dhaka Stock Exchange and Chittagong Stock Exchange and Chittagong Stock Exchange
Delta Delta Life Insurance Company business began with the making of item or administration
and finished with the endeavor to sell it. Delta Life should begin with the information available.
In this way, it is important to discover what is required, what will be sold, really at that time should
return the activity to make the item or administration. Delta Life can invest wholeheartedly in trim
the saving propensities for the lower-and working-class individuals and changing them into
planned policyholders. The potential is currently so unequivocally saw that all extra security
organizations – old and new indistinguishable – working in the nation have begun their own
miniature protection items. (Delta Life Insurance Company Limited - A leading life insurer in Bangladesh,
n.d.)

9. Aamra technologies limited:

Aamra Technologies Ltd. (ATL) is predominantly occupied with furnishing the financial market
with equipment, programming and availability arrangements. The organization offers IT
arrangements and administrations that incorporate Systems Integration, Information System
Outsourcing, Core Banking Software, Switching and Network and Solutions, supply, execution
and support. The organization was recently known as Texas Electronics Limited and changed its
name to Aamra Technologies Limited in December 2007. (aamra technologies limited, n.d.)

9
10. Jute Spinners

The company is a publicly traded company as per income tax law. The rate of Income Tax
applicable to the company during the year under audit is 15%. During this financial year, The
Company’s Turnover Taka. 530,838,856 million. Gross Profit Taka. 61,284,429 million. Cost of
Goods Sold Taka. 469,554,427 million. Operating Profit Taka. 7,585,015 million. Net Profit
after Tax for the year 2009, Taka. 3,719,816 million. The Board of Directors is pleased to
recommend Final Dividend @ Tk. 20/= (twenty) only per share of Tk. 100/= each on paid-up
capital. These fiscal summaries are introduced in Bangladesh (Taka/Tk/BDT) which is the
organization's utilitarian money. All monetary data introduced in Taka has been adjusted to the
closest Taka. (Bangladesh Jute Spinners Association – BJSA, n.d.)

11. Bashundhara Paper Mills Limited

Bashundhara Group is quite possibly the most renowned and experienced business and mechanical
combinations in Bangladesh today. The Group took off from the nascent period after foundation
of East West Property Development (Pvt.) Ltd. a land concern, famously known as "Bashundhara"
which turned out to be its first endeavor in this area. Bashundhara is currently working with
fourteen imperative endeavors of exceptionally regarded business and mechanical prevalence
having significant level of specialization in the field of land, modern endeavors and business
ventures. Current worth of the all out resources of the endeavors of Bashundhara Group would be
about Tk. 15000 million identical to roughly US$ 300 million. All out turnover of the business
adds up to around Tk. 16000 million identical to US$ 325million. (Home - Bashundhara Paper Mills
Limited, n.d.)

12. Bangladesh Export Import Company Ltd:

Beximco Group should be Bangladesh's biggest private area modern endeavor. It has zeroed in on
the undertakings the country needs most for progress and improved expectations for everyday
comforts. Beximco is additionally centered around those ventures, which benefit as much as
possible from Bangladesh's upper hands in the worldwide market. Through its continuous
development, it has made modern and the executives’ abilities that will serve the country for ages.
BEXIMCO's modern area incorporates jute, materials, fundamental synthetics and drugs and
marine food sources. Non-modern endeavors are centered around land and development,

10
designing, media, data innovation, exchanging and monetary administrations. BEXIMCO Group
is the biggest private area modern combination in Bangladesh occupied with different business
zones. BEXIMCO includes five freely recorded organizations and sixteen privately owned
businesses. The Group turnover in 2014 was BDT 18.5 billion. BEXIMCO utilizes 35,000
individuals and has 230,000 investors. BEXIMCO's offers comprise 4.84% of the market
capitalization of DSE. (BEXIMCO | Bangladesh Export Import Co. Ltd., n.d.)

Overview of Modern portfolio Principal and asset pricing model

Modern Portfolio Principal: Modern Portfolio theory is a concept on how risk-averse investors
can maximize expected return with regard to a given amount of risk. Harry Markowitz had
invented the Modern portfolio theory. He discovered it in 1950. However it was published
officially in one of his papers called “portfolio selection” in 1952. According to him there are 3
important factors of a portfolio:

• Portfolio and different securities or assets risk should never be equivalent.

• Securities of a portfolio should be selected systematically not randomly.
• There are two risks of a portfolio. They are: individual securities weighted risk
(independent risk) and weighed co-movement of different securities returns ( dependent
risk)

If the covariance is positive, portfolios risk will be high on the other hand, if the covariance is
negative the portfolio’s risk will be low. Efficient frontier is used for analyzing and finding
efficient stocks of portfolio according to Markowitz theory model. By using this, most attainable
as well as most desirable portfolios can be easily found. However, according to investors’
indifference portfolio selection vary from investors to investors.

Markowitz portfolio theory has some assumptions:

• It is built upon single investment period

• No transaction related cost is associated
• No borrowing and leverage cost are associated
• Only on portfolio risk and portfolio return the investors are based.

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Asset Pricing Model:
William Sharpe had invented Capital Market theory which is based on Markowitz Portfolio
Theory. It was officially published in 1970. He had assumed the following:

1. At a risk free rate the borrowing as well as the lending of investors can be happened.
2. All the investors of the market have same homogeneous expectations concerning the risk
and return.
3. All the investors have the same type of single investment period
4. No transaction cost is available
5. No income tax is available
6. No inflation is available
7. Price of the securities will not be affected any single investors.
8. The capital markets will be imbalanced

The expected return of securities is calculated by

Ri=Rf +β (Rm−Rf)

Finding and Analysis

We will perform our analysis of the 12 stocks as well as index of Dhaka Stock Exchange (DSE)
based on their theories. The analysis of our selected 12 Stocks and DSEX are given below

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Analysis of Geometric mean return, standard deviation and coefficient
of variation

Geometric Standard Coefficient

Stocks Mean Return Deviation of variation
DLIN 0.1494768% 8.0399172%
AFAM 8.0399171918% 1.9537026%
0.4166666667%
DESC 0.0000000000% 1.6863763805% 7.7143649%

AMAR 1.3513513514% 9.3042668256% 0.0121240%

FWCR 1.0204082% 10.5614810% 49.3814754%
APEF 0.166528% 17.016596% 25.2768590%
IPDC 0.0000000% 16.1924733% 35.6708175%
ARMC 5.363985% 12.321113% 16.9721018%
JTSP -0.6250000% 17.1143776% -1.4584849%
BASH 0.491400% 9.206197% 31.1037703%
BEXI 0.2735978% 8.8321623% 14.22698203%

BRAC 3.4739454% 6.6690793% 3.28676225%

The above chart is showing all the geometric mean, standard deviation of all the 12 stocks from
the selected industries. We have calculated this after computing returns of the stocks and DSE index.
By using these measures associated risks compared accompanied by stocks return are calculated. We
have calculated geometric mean for all the stocks. Here ARMC has the highest geometric mean return
which is 5.363985% and DESC has the lowest geometric mean return.

The second column is for standard deviation. It is generally used for analyzing different company’s
return variation from the estimated geometric mean returns. We have returns of the stocks for
calculating it. In the above shown data DESC has the least standard deviation 1.6863763805%. The
other 4 companies who have the least standard deviation are BRAC 6.6690793%, DLIN has 8.0399172%
AFAM 8.0399171918%, BEXI 8.8321623% whereas, JTSP has the highest standard deviation
17.1143776% even though this company’s geometric mean return is negative.

13
The third column is for coefficient of variations. It shows comparative deviation from the
geometric mean to the standard deviations. The additional return for every unit of the average
return. It suggests better signs in deviation but standard deviation is mostly used for finding any
type error. According to the above chart the lowest 5 CV are: JTSP -1.4584849%, AMAR

Portfolio Risk and Return:

We have followed Markowitz two asset portfolio model. We have formed each portfolios by
combining two stocks. Thus, we have 66 portfolios from 12 stocks. We calculated the weighted
market capitalization. From the outcome of this we have calculated the risk and return of each
portfolios.

Portfolio Stock 1 Stock 2 Return Risk

1 DLIN AFAM 0.002035038 0.066477
2 DLIN DESC 0.000614366 0.035287
3 DLIN AMAR -0.0013722 0.067745
4 DLIN FWCR 0.002654291 0.071244
5 DLIN APEF 0.001506521 0.075933
6 DLIN IPDC 0.00075852 0.090093
7 DLIN ARMC 0.006303479 0.074049
8 DLIN JTSP 0.001361723 0.079038
9 DLIN BASH 0.002956281 0.06052
10 DLIN BEXI 0.002602543 0.079528
11 DLIN BRAC 0.030652017 0.059395
12 AFAM DESC 0.001712545 0.019443
13 AFAM AMAR 0.000789295 0.069878
14 AFAM FWCR 0.004970464 0.072003
15 AFAM APEF 0.00399425 0.079504

16 AFAM IPDC 0.002114374 0.132268

17 AFAM ARMC 0.00872898 0.078966
18 AFAM JTSP 0.003987722 0.076231
19 AFAM BASH 0.004486108 0.072308
20 AFAM BEXI 0.002889783 0.08662
21 AFAM BRAC 0.030980527 0.064572
22 DESC AMAR -0.00258143 0.019568
23 DESC FWCR 0.00135853 0.019329
24 DESC APEF -0.01246726 0.018289
25 DESC IPDC -0.00685743 0.066819
26 DESC ARMC 0.004946555 0.017861

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27 DESC JTSP -0.00010737 0.016843
28 DESC BASH 0.002100433 0.033999
29 DESC BEXI 0.002441849 0.075502
30 DESC BRAC 0.030468235 0.055901
31 AMAR FWCR -0.01035585 0.085018
32 AMAR APEF -0.01246726 0.088888
33 AMAR IPDC -0.00685743 0.137292
34 AMAR ARMC -0.00732077 0.087851
35 AMAR JTSP -0.01338874 0.087806
36 AMAR BASH -0.00563689 0.078705
37 AMAR BEXI 0.000989091 0.085975
38 AMAR BRAC 0.028806747 0.064648
39 FWCR APEF 0.009615516 0.155161
40 FWCR IPDC 0.005178059 0.145861
41 FWCR ARMC 0.014209637 0.088958
42 FWCR JTSP 0.009921421 0.096829
43 FWCR BASH 0.007942901 0.079545
44 FWCR BEXI 0.00353883 0.086872
45 FWCR BRAC 0.031722828 0.06539
46 APEF IPDC 0.000845046 0.155161
47 APEF ARMC 0.006458265 0.100983
48 APEF JTSP 0.001529304 0.144131
49 APEF BASH 0.003053908 0.085255
50 APEF BEXI 0.002620874 0.08762
51 APEF BRAC 0.030672981 0.066047
52 IPDC ARMC 0.004946555 0.149009
53 IPDC JTSP -0.00010737 0.159323
54 IPDC BASH 0.002100433 0.100648
55 IPDC BEXI 0.002441849 0.08128
56 IPDC BRAC 0.030468235 0.062179
57 ARMC JTSP 0.052611015 0.107727
58 ARMC BASH 0.032812561 0.08552
59 ARMC BEXI 0.008208354 0.08794
60 ARMC BRAC 0.037063259 0.065799
61 JTSP BASH -0.00147808 0.092282
62 JTSP BEXI 0.001769948 0.088256
63 JTSP BRAC 0.029699797 0.066612
64 BASH BEXI 0.001769948 0.082459
65 BASH BRAC 0.031072412 0.061138
66 BEXI BRAC 0.030804624 0.080398

15
Efficient frontier: The efficient frontier is a set different portfolios which have the highest level
of expected returns for lowest level of risk.

Efficient Frontier
9000000.0000000%
8000000.0000000%
7000000.0000000%
6000000.0000000%
5000000.0000000%
4000000.0000000%
3000000.0000000%
2000000.0000000%
1000000.0000000%
0.0000000%
-1000000.0000000% 0 2 4 6 8 10 12 14

SD Mean Market Cap Series4

Figure: Efficient sets of portfolios on efficient frontier.

We have used Standard deviation, mean and market cap for finding efficient frontier. All the
investors don’t follow the same indifference curve. An investor chooses portfolios according to
his particular indifference curve in efficient frontier.

Analysis of Calculated Beta

We have collected the beta of the 30 stocks from “investing.com” website for the market beta.
Here is the list of the betas that we have found from the website and also the calculated beta of
the 12 stocks:
Stock Name Calculated Beta Beta Found in Website
DLIN 1.53 1.00
AFAM 1.48 1.525
DSEC 0.67 0.86
AMAR 1.4 1.26
FWCR 1.83 1.69
APEF 1.53 1.37

16
 IPDC 1.55 1.14
ARMC 1.2 1.06
JTSP 1.08 0.976
BASH 1.42 1.23
BEXI 1.76 0.89
BRAC 1.06 1.415

Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a
beta of 1.0, and individual stocks are ranked according to how much they deviate from the 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. Stock with higher beta requires a higher return to
compensate that risk. We have found that among 12 stocks FWCR has the highest beta of 1.83
whereas DSEC has the lowest beta of 0.67. This indicates FWRC is the most volatile stock
compare to DSEX Index and DSEC is the less volatile Stock compare to DSEX Index.

Reasons for Beta Variation

Until now we have noticed that the beta of the stocks that we have calculated by doing the
Regression Analysis is not the same as the beta that we have found from the website. We have
figured out that beta could vary for the following reasons:
1. We have calculated beta only using 27months of historical data, in those websites they might
have used data of longer periods.
2. The websites use the adjusted close price to calculate the beta. But we have used the close
price of the stocks to calculate the beta in our calculation.
3. We have calculated the beta only using historical return but there could be other factors that
can affect beta which we didn’t consider. For instance, dividend yield, growth in earning per
share, etc.
4. There are so many macro-economic factors that have an impact on beta-like inflation, for
example, n number of factors of the arbitrage pricing model. Everyone tries to figure out the n
number of factors but it doesn’t match with one’s prediction to another’s. This could be the
case here that different sources used a different variable.

17
 5. Maybe the method we used that is running regression might not be the same as them that’s
why we have seen different results on different websites. (We used the single beta model
(CAPM), they might have used a multi beta model).

Required Return Analysis of Each Stock Based on CAPM

We have calculated the required return of each stock-based Capital Asset Pricing Model
(CAPM). The formula of CAPM is:
Required Return, Ri = Rf + β (Rm-Rf)
According to the instruction of the project outline, we have assumed that the risk-free rate, Rf
= 5% and the Average Market Return, Rm = 15%.
Based on that, we have calculated the required return of each Stock.
The required return of each stock based on CAPM is given below:

Serial Stock Name Required Rate of Return

No
1 DLIN 20.30%
2 AFAM 19.80%
3 DSEC 11.70%
4 AMAR 19.00%
5 FWCR 23.30%
6 APEF 20.30%
7 IPDC 20.50%
8 ARMC 17.00%
9 JTSP 15.80%
10 BASH 19.20%
11 BEXI 22.60%
12 BRAC 15.60%

18
 Required Rate
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
DLIN AFAM DSEC AMAR FWCR APEF IPDC ARMC JTSP BASH BEXI BRAC

Required Rate

Based on the information, we can see that, BEXIMCO has the highest required return of 22.60%.
On the other hand, DESCO has the lowest required return of 11.70%. Because of the systematic
risk of stocks their required rate of return varied.

Best 5 Stocks Based On the Analysis

Here we have found the top five stocks based on their returns and risks those are shown below.

No Company Return
1 ARMC 5.3639850%
2 JTSP 0.6250000%
3 BASH 0.4914000%
4 BRAC 3.4739454%
5 FWCR 1.0204082%
Figure: Top 5 stocks based on return

No Company Return
1 DLIN 8.0399172%
2 AFAM 8.0939917%
3 DESC 1.6863760%

19
 4 BEXI 8.8321623%
5 BRAC 6.669097%
Figure: Top 5 stocks based on risk

The above top 5 stocks are ranked based on the least amount of risk possible from all the chosen
30 stocks traded in DSE.

If an investor wants to take any decision regarding the selection of the stocks, then he/she needs
to choose the stocks based on return or risk. If the investor analyzes the risk, then he/she needs to
choose any stock, which will have the lowest risk, then the investor will be a risk averse. If the
investor chooses the return criteria for selecting the stocks or portfolio, then he/she needs to select
the stock, which will provide the highest return, then he/she will be a risk taker.

Best 5 Portfolios Based On the Analysis

We have found the top 5 portfolios based on the portfolio returns and those portfolios are:
NO Company 1 Company 2 Return

1 FWCR BRAC 0.031722828

2 ARMC JTSP 0.052611015
3 ARMC BASH 0.032812561
4 ARMC BRAC 0.037063259
5 BASH BRAC 0.031072412
Figure: Based on Portfolio Return
Here, we have selected top 5 stocks based on the return that means if an investor wants to select a
portfolio then he/she will be analyzing the portfolio based on the performance in terms of return.
Here, the investor will be thinking that higher the return, the better will be the performance of the
portfolio.

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 RETURN
0.06

0.05

0.04

0.03

0.02

0.01

0
FWCR BRAC ARMC JTSP ARMC BASH ARMC BRAC BASH BRAC

Series 1

Thirdly, we have found the top 5 portfolios based on the portfolio risk and those portfolios are:
NO Company 1 Company 2 Risk

1 AFAM DESC 0.019443247

2 DESE FWCR 0.019328748
3 DESE APEF 0.018289347
4 DESE ARMC 0.017860804
5 DESE JTSP 0.016842846

Figure: Based on Portfolio Risk

21
 Risk
0.02
0.0195
0.019
0.0185
0.018
0.0175
0.017
0.0165
0.016
0.0155
AFAM DESC DESE FWCR DESE APEF DESE ARMC DESE JTSP

Risk

Mainly when an investor is selecting the portfolios based on risk, the investor will be excluding
risky stocks from the selection. That means, the investor will be staying away from investing in
higher risk investments. Therefore, among several investments providing the similar return with
different levels of risks, this investor always favors the alternative portfolio with least interest.

Limitation of The Project

Potential limitation of this project is the representativeness of the data. We have collected our
data from DSEX and Investing.com. We have faced some problem while doing this project. Our
calculation may not be accurate. As We have calculated beta only using 27months of historical
data, in those websites they might have used data of longer periods. The websites use the
adjusted close price to calculate the beta. But we have used the close price of the stocks to
calculate the beta in our calculation.

Recommendation
Out of all the portfolios only 5 portfolios we have found as good for investment since they are all
on the efficient frontier curve. We should be recommended investors to invest in these portfolios
that investors can maximize their gain as all of these portfolios are optimal sets of risk & return
for sure.

22
But if an investor wants to spend in this bearish market then he will have to reconsider the decision
based on the possible return shown above. The reconsiderations must answer the following aspects
discussed.
If an investor is risk averse and or neutral risk taker then it is more applicable to not invest in the
market now, as the expectation to receive return is unpredictable for the upcoming months. Then
again, if an investor is a risk taker then he can plan to invest in the market as the price is low due
to the pandemic situation all around the world. Further, the listed companies have shown to be in
a good position until this unprecedented moment that made the economic circulation at a stop for
some time.
But past records have also proven that neither bullish nor bearish markets last forever. So, if
investor plans to invest for more than 5 years then the result could be satisfactory or more
depending on the objective (whether investor wants to hold for longer period or trade in the market)
and expectation from the investment.

Conclusion
After analyzing the risk, return and correlation of the 12 stocks, we can conclusively say that
investing in this pandemic situation in the bearish market for a risk averse and risk neutral investor
might not be a wise decision as the expected return seems to be not satisfactory and seems to be
doubtful as the economy itself is in an unprecedented call. On the other side, for arise taker this
can be an opportunity to invest with consideration of the delayed outcome that might either be
fruitful or worse than expected as the suggested timeline to receive the outcome is 5 years or more.

23
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