Diversification and Portfolio Construction

Submitted by-
Names ID
Ratin Hasan Rohan 1822287
Erfanul Rahim 1830376
Mominul Islam 1821760
Nabila Chowdhury Laiba 1710863
Mohtasim bin Islam 1720836

Submitted to- Mohammad Fahad Noor

For- FIN 460
Section 01
On the 22nd of April 22, 2021
Table of Contents
Executive summary.....................................................................................................................................5
Investor and Portfolio Characteristics..........................................................................................................6
Dividend Discount Model and Intrinsic Values...........................................................................................7
Selection Criteria (Company Analysis).......................................................................................................9
Capital Market Expectations......................................................................................................................18
Individual Return................................................................................................................................18
Average Return....................................................................................................................................18
Variance and Standard Deviation......................................................................................................19
Beta for Individual Company.............................................................................................................19
Portfolio Selection....................................................................................................................................21
Portfolio for 15 trading days......................................................................................................................26
Evaluation the performance of Portfolio...............................................................................................28
Sharpe’s measure.................................................................................................................................28
Treynor’s Measure..............................................................................................................................28
Jensen's measure.................................................................................................................................28
Sources......................................................................................................................................................33
Dear Sir, with due respect, it is our pleasure and honor to be your student and have this
opportunity to present the report on Diversification and Portfolio Construction. While preparing
the report, we have given our best focus thoroughly on the topic regarding this project. While
preparing the report, we have given our best to accumulate needed information and we shall be
more than happy to answer any question and clarify it fully to your understanding. Thank you for
all your help and support which helped us significantly in preparing this report.
Sincerely yours,
Ratin, Erfan, Mominul, Laiba, Mohtasim
In performing our project, we had to take the help and guideline of our respected faculty, who
deserve our greatest gratitude. The completion of this Report gives us much pleasure. We would
like to show our gratitude Mr. Mohammad Fahad Noor, Lecturer, Independent University,
Bangladesh, for giving us a solid guideline for the project throughout numerous consultations.
We would also like to expand our deepest gratitude to all those who have directly and indirectly
guided us in writing this Project. Many people, especially our team members themselves, have
made valuable comments and suggestions on this proposal, which gave us an inspiration to
improve our assignment by a large margin. We deeply appreciate everything each member has
done for the project.
 Executive summary

The stocks selected by the team for diversification and portfolio construction are BXPH,
AZIZPIPES, ACI, ATLASBANG, SQUAREPHARMA, ARAMITCEM, ALHAJTEX, BATBC,
BANKASIA, BDTHAI. Individual risk and returns are calculated for each stock along with
covariances and correlations. Then, Portfolios were created of two of these companies and held
for 15 days to monitor their performance in the market and their risk, return and expected return
were calculated.
 Investor and Portfolio Characteristics

An investor is any person who invests capital with the expectation of receiving financial returns.
Investors rely on different financial instruments to achieve important financial goals like funding
a college education, or just accumulating additional wealth over time. An investor is typically
different from a trader. An investor puts capital to use for long-term gain, while a trader seeks to
generate short-term profits by buying and selling securities over and over again.

Investors typically generate returns by installing capital as either equity or debt investments.
Investors are not a uniform group. They have changing risk tolerance, capital, and preferences.
For instance, some investors may prefer very low-risk investments that will lead to traditional
low gains, such as certificates of deposits and certain bond products. Other investors, however,
are more persuaded to take on additional risk in an attempt to make a larger profit. These
investors might invest in currencies, emerging markets, or stocks, all while dealing with a bumpy
road of different factors on a daily basis.

A portfolio is a collection of financial investments like stocks, bonds, commodities. People

generally believe that stocks, bonds, and cash comprise the core of a portfolio. Though this is
often the case, it does not need to be the rule. A portfolio may contain a wide range of asstes
including real estate, private investments.

Risk averse. Your portfolio should not represent you to any more risk than it is necessary to
meet your objectives. For some, this will mean a portfolio composed of mostly stocks. For
others, it will mean all cash. For most, it will mean something in between. For every investment
portfolio, there is a minimum level of risk and return that are necessary to safely achieve its
objectives.
Risk efficient. Risk is something to be avoided. To know the quality of your portfolio, you must
know how much return to expect from it. A good portfolio delivers the expected return you need
with the least possible risk. Risk efficiency is achieved by properly diversifying your portfolio.
Simple. A good portfolio reduces difficulty and evades using unnecessary components. If your
portfolio contains more than 10 or maximum 20 securities, you can probably do better. When it
comes to selecting your portfolio, fewer is better than more. You should be able to quickly
review and assess your portfolio’s performance from a few account statements that each contain
no more than a handful of securities and dealings each year.
Transparent. You should clearly understand what each component of your portfolio is, and
what it is supposed to do. Don’t trust anyone in the investment business. Trust should be earned,
and then given only carefully and where absolutely necessary.
Easy to manage. Making changes to your portfolio should be easy for you to accomplish.
 Dividend Discount Model and Intrinsic Values

The dividend discount model is a quantitative method used for predicting the price of a
company's stock based on the theory that its present-day price is worth the sum of all of its future
dividend payments when discounted back to their present value. It attempts to calculate the fair
value of a stock irrespective of the prevailing market conditions and takes into consideration the
dividend payout factors and the market expected returns.
In this part we were asked to calculate the intrinsic value of all 10 stocks. Intrinsic value is a
measure of what an asset is worth. If the market price is below the intrinsic value it may be
considered a good buy, and if above a good sale. We used the constant dividend growth model
to calculate the intrinsic values. Of all the values we have calculated the intrinsic value of
BATBD, BDTHAI and BXPHARA are the best.
BATBC- BATBC has been a company with legacy for quite a long time now and that is
perfectly reflected in their position in DSE. They are already the Blue Chip of their respective
industry so any scope of growth in size and returns are unlikely which is currently at 0.25%. And
calculations show that the intrinsic value is 1497.5 which is so much higher than one will have to
pay to acquire it.

SQUAREPHARMA- One of the leading pharmaceutical companies in the nation, Square has
been paying high amounts of dividends for quite some time now and the calculated growth rate
at 13.33% shows that it will only go higher in the foreseeable future. The intrinsic value stands at
141.35.

BANKASIA- Although they arrived in the banking scene very recently, they are already one of
the top players in the industry. Their sites of business can be spotted in every neighborhood.
Growth rate is 3.33% but that’s fine as it's quite difficult to flourish more once this level is
reached. Intrinsic value is 36.77 which is higher than the current market price. Dividend payout
is decent as well.

BXPHARMA- Another top company in the pharmacy industry, it is almost guaranteed their
products will be found in every household in the country. And yet they are growing at 10.46%
despite paying good amounts of dividend. A must keep stock for any investor. Intrinsic value is
22.74.

ACI- ACI is one of the largest and leading companies in the chemical industry. Due to the
pandemic situation their performance has been lagging behind but it will definitely change as
soon as the economy changes. They are already paying a decent amount of dividend which will
tend to increase along with the economic situation. Their dividend growth rate is -2.8% and as
per our calculation shows the intrinsic value is 184.44 but this will all go up as the economy
finds its footing once again. Therefore, holding onto this stock will be a good idea for an
investor.

ATLASBANG- ATLASBANG was doing fine for itself till it was introduced to the pandemic
situation. But now it is struggling to keep its investors satisfied.Their dividend growth rate is
-39.21% and according to our calculation their intrinsic value is 4.62.

BDTHAI- BDTHAI has been leading in its engineering industry ever since they were
established. They have been very successful in keeping their investors happy by paying them
more dividend than promised. But they cannot keep this up e because they are not retaining any
earnings, so they cannot invest and will likely fail to give dividends after some years. Their
growth rate is -1.15% and our calculated intrinsic value for their stock is 159.7 which is
immensely higher than the market price. If the dividend payout ratio does not decrease it will be
better for an investor to invest or stay here for a short term and then move on to greener pastures.
 Selection Criteria (Company Analysis)

British American Tobacco:

BATBC falls under Blue Chip stocks category without any doubt as they are financially strong,
high-quality stocks with long and stable records of earnings and dividends. BATBC is the
undisputed leader in their industry and it doesn’t seem like they will lose their lead anytime soon,
thus guaranteeing low risk since they’ll be at the top. BATBC has also been at the top 20 stocks
in DSE in terms of value for years now. Investors may also be interested in the growth potential
of this already high-rewarding stock which is expected to grow at around 8.6% over the next few
years. BATBC has almost no debt for five years now reducing volatility even further.
BATBC can be considered a defensive stock as well since their main products are tobacco and
they are highly addictive. Therefore, it is safe to say it will hold its value and even potentially do
well even when the economy itself is not doing that well. In the past it proved itself by doing so.
BATBC is a large market capitalization stock meaning a handful of these make up most of the
value of DSE.

Company Analysis:
Arriving in 1910, and its headquarters located in Mohakhali, Dhaka BATB has been running its
business in this region for over a hundred years as one of the largest multinational corporations
selling cigarettes. They are listed in both DSE and CSEBD.
The BAT Vision:
“Our vision is to build a better tomorrow by reducing the health impact of our business through
offering a greater choice of enjoyable products for our consumers.”

BDTHAI:
Company Analysis:
Arriving in the scene in 1979. Bangladesh Thai Aluminum is now one of the leading aluminum
producing companies that exist in the country with its headquarters located in Banani, Dhaka.
They are listed in both DSE and CSEBD.
BDTHAI falls under cyclical stocks as their performance have been closely related to the state of
the economy of the country in the past. When the economy was performing well, they performed
well and vice versa. Recommended for opportunistic investors as it has a higher chance of
appreciation than the already booming blue chips and it already has a rich history of making
decent profits and stock valuation.
With a market capitalization of 2.542.727-Billion-taka BDTHAI falls under the mid-cap stock
criteria.
Mission Statement:
“Our aim is to serve our nation by manufacturing and distributing quality aluminum profiles for
structural and other purposes in a more reliable, competitive and environment friendly manner
leading to satisfaction of our customers, shareholders and employees.”

Beximco pharma: is in the top 20 shares in DSE at the moment.

Bxpharma falls under income stock as they have a long and sustained record of paying higher
than average dividends. These types of stocks are good for investors looking for a safe and good
better or high level of income. Dividends tends to increase over time. These companies pay high
dividends because they offer limited growth potential
Bxpharma is also a defensive stock. Defensive stocks tend of hold their values and even do well
when the economy is performing well. As Bxpharma is a pharmaceutical company, stock prices
will be stable or increase even if the economy is slowing. Best for aggressive investors.

Bxpharma is also a large-cap stock as their market capitalization is 78B. tend to to be left behind
mid-cap and small-cap because of its size but typically are more stable. Number of companies
are small, but makes up roughly 70 to 80 percent of the market.

The company is currently profitable, earnings are estimated to grow by 12.9 a year for 3 years.
The company is a good financial position as the debt is lower than assets. Bxpharma has High
profit margins, with no negative shareholders and no concerning events.

company analysis

Beximco pharmaceuticals is one of the leading pharmaceuticals company in Bangladesh and it is

a member of the Beximco group. The company was established in 1976 and started
commercial ,production in 1980. It manufactures a range of dosage forms including tablets!
capsules! dry syrup, powder, cream, ointment, suppositories, large volume intravenous
fluids, metered dose inhalers etc. Beximco has exported medicines to more than 40
countries.

mission: Bxpharma’s mission is to be committed in enhancing human health and well-

being by providing modern and affordable medicines, manufactured in full submission with
global quality standards. We continually attempt to improve our essential abilities to address the
unmet medical needs of the people and to deliver outstanding results for our shareholders.

vision: Bxpharma’s vision is to be one of the most trusted and successful pharmaceuticals
company in Bangladesh, with ground breaking research and development capabilities.
 Recent Milestones : GMP approval from German Regulatory Authority and Malta Medicines
Authority (European Union)
- Global Generics & Biosimilars Awards 2019 as “The Company of the Year, Asia-Pacific”
- CPhI Pharma Awards 2020 for “Innovation in response to COVID-19”
-Won the “Scrip Award” in the category of ‘‘Community Partnership of the Year’’
- GMP approval from Malta Medicines Authority
-Won the “Scrip Award” in the category of “Best company in an emerging market”

AZIZPIPES:
Company anlysis: Aziz Pipes Limited manufactures and sells PVC rigid pipe and profile
products in Bangladesh. Its products include uPVC pipes, fittings, doors, and windows. The
company also exports its products. Aziz Pipes Limited was incorporated in 1981 and is
headquartered in Dhaka, Bangladesh. It has started its commercial production in the year 1985.
The company has been listed with the DSE in 1985 and CSE in 1995.

Mission: Azizpipes mission include being the permanent supplier of uPVC pipes & fittings,
PVC foam sheet and PVC Profiles to its customers through product leadership, outstanding value
and superior quality and service. The company’s dream is to be a renowned name in its industry
by providing great products and customer satisfaction.

Vision: Azizpipes vision include promoting quality product for industry practice. To improve
the knowledge and consciousness of modern plastic pipeline technologies amongst specifies,
users and installers. To promote being honest and improving standards. To promote and
contribution in the development of specifications and practices that help ensure the proper use of
plastic pipes.

Azizpipes falls under cyclical stock as cyclical stock are stocks whose earnings and overall
market performance are closely linked to the general state of the economy. These types of stocks
are generally good for investors who are willing to move in or out of the market as economy
changes. Azizpipes falls under growth stocks, growth stocks are stocks that experience high rates
of growth. These stocks tend to be riskier and pay little dividend. The company also falls under
small-cap stocks with a market capitalization of 523M. Azizpipes share prices have been stable
for the past 3 months. Earnings have grown 53.4% over past 5 years. Azizpies have no
concerning events and shareholders have not been thinned recently.
Bank asia;
Bank asia limited is a private sector commercial bank. It is a third-generation public limited
commercial bank. Bank asia falls under income stock. Their stock price has been stable over the
past 3 months, shareholder have not been meaningful diluted in the past and present scenario.
because of pandemic, it shows minimal amounts of risk with sustained record of paying average
dividends. These types of stocks are good for investors looking for a safe.
Bank asia is a defensive stock. Defensive stock tends of hold their values and even do well when
the economy is performing well. As we know that, bank asia is a private commercial bank, their
stock price will be stable and increase when economy will improve.it is best for aggressive
investors.
The bank is currently profitable in banking sector. It earnings are estimated to grow by 12.3 a
year for 3 years. Bank asia is a good financial position as the debt is lower than assets.

Company analysis;
Bank asia gives various banking product and services to individual, retail and corporate
customers in Bangladesh and internationally. The company offers current, savings, short notice,
fixed and foreign currency deposit products and debit card & credit card and so on. The bank
also provides over drafts, commercial vehicles loan. Loans against imported merchandizes,
payment against document and documentary bills and so many services.
Bank Asia was founded on November 27, 1999 by a group of successful Bangladeshi
entrepreneurs with the primary goal of providing high-quality banking services and actively
participating in the Bangladeshi economy.Bank Asia is Bangladesh's only bank to have acquired
the Bangladesh operations of two foreign banks, Muslim Commercial Bank of Pakistan and
Bank of Nova Scotia of Canada. Over the years, asset and liability growth has been remarkable.
The Bank's investment in Treasury Bills and other securities increased noticeably, opening up
opportunities for income enhancement in the context of a gradual interest rate decline regime.
Mission;
Bank asia’s missions are given below;
 To assist in bringing high quality service to our customers and to participate in the
growth and expansion of our national economy
 To set high standards of integrity and bring total satisfaction to our clients, shareholders
and employees
 To become the most sought-after bank in the country, rendering technology driven
innovative services by our dedicated team of professionals
Vision;
Bank Asia's vision is to have a poverty-free Bangladesh within a generation of the new
millennium, mirroring the national dream. Our vision is to create a society that prioritizes human
dignity and human rights while also reducing poverty.

Al haj textile mills;

Al haj textile mills falls under cyclical stocks. This type of stocks has high risk. Their
performance is overall related to the state of economy. This stock is more volatile than 75% of
bd.AL HAJTEX’s weekly volatile 8% has been stable over the past year, but still higher than
75% of bd stocks. Their dividend is too low to be a concern. They do not have negative
shareholder equity. Most of the time they do not have a financial track record. Because of that
reason, al hajtex is also falls under small cap stocks. Its earnings are estimated to grow by 30.6%
a year for 3 years.
Company analysis;
Alhaj Textile Mills Ltd, established as a Private Limited Company in 1962, is one of
Bangladesh's oldest cotton yarn manufacturers. The Mill's manufacturing units are located in
Ishurdi Pabna and were converted to a Public Limited Company in 1967. Setting up its second
unit, which will include a total of 20,160 spindles and 800 rotor heads.
In Bangladesh, Alhaj Textile Mills Limited manufactures, markets, and sells cotton yarns.
Polyester spun, poly viscose blend, poly cotton blend, and viscose spun yarns are also available.
Their revenue increasing day by day.

Mission;
Al haj textile mill’s missions are given below;
 To become a leading and responsible textile industry, which understands the human
requirements and acts to balance these requirements by producing world-class products,
keeping in view the social, economic and environmental concerns of the nation.
 
 To stay at the forefront of technological superiority by adopting, assimilating,
understanding, implementing fresh innovative concepts for the betterment of the Industry,
Community and the Country.
 
 To obtain customer satisfaction through the enhancement of product standards and long-
term relationship with the customers world over.
 
 To maximize on the workforce by arranging educative workshops, sessions on time-
management and by creating conducive work environment.
 
  To synchronize the group's diversified interests with those of its employees and varied
clients.

Vision;
Al haj textile mills are committed to becoming the premier textile manufacturing organization
by maintaining market leadership in our current business while diversifying into value-added
projects with the goal of maximizing returns for all stakeholders.

Square Pharmaceuticals: Square Pharmaceuticals falls under income stock where

it shows minimal amounts of risk but also a moderate amount of return through its
stocks. It has a high turnover rate with a good percentage of cash dividends given
out per annual. Income stocks represent the fact, it pays regular, often steadily
increasing dividends. Income stocks usually offer a high yield that may generate
the majority of the security's overall returns. While there is no specific breakpoint
for classification, most income stocks have lower levels of volatility than the
overall stock market, and offer higher-than-market dividend yields.
Squarepharma is also a defensive stock. Defensive stocks tend of hold their values
and even do well when the economy is performing well. As Squarepharma is a
pharmaceutical company, stock prices will be stable or increase even if the
economy is slowing. Best for aggressive investors
The company is currently profitable, earnings are estimated to grow by 12.9 a year
for 3 years. The company is a good financial position as the debt is lower than
assets. Bxpharma has High profit margins with no negative shareholders and no
concerning events.

Company Analysis
SQUARE Pharmaceuticals Limited is the largest pharmaceutical company in
Bangladesh and it has been continuously in the 1st position among all national and
multinational companies since 1985. It was established in 1958, converted into a
public limited company in 1991 and listed with stock exchanges in 1995. The
turnover of Square Pharma was BDT 50.87 Billion (US$ 609.18 million) with
about 16.95% market share having a growth rate of about 10.85% (July 2018– June
2019).
Mission: Our Mission is to produce and provide quality & innovative healthcare
relief for people, maintain stringently ethical standard in business operation also
ensuring benefit to the shareholders, stakeholders and the society at large.
Vision: We view business as a means to the material and social wellbeing of the
investors, employees and the society at large, leading to accretion of wealth
through financial and moral gains as a part of the process of the human civilization.
ARAMITCEM
Aramit Cement Limited failed to hold the current annual general meetings or have
failed to declare any dividend or which are not in operation for more than six
months or whose accumulated loss after adjustment of revenue reserve, if any, is
negative and exceeded its paid-up capital.
Company Analysis
Aramit Cement Limited is a sister concern of Aramit Group, one of the nation’s
notable building material manufacturing group from Bangladesh. The organization
has their operational premises at Kalurghat Heavy Industrial Estate, Mohora,
Chittagong, Bangladesh. Establishing itself as a Public Limited Company 19th
August, 1995, the company has now the proud claim of holding more than BDT
500 million in capital only. With the addition of new production units on January
2017, the total yearly production capacity is 612,000 Metric Tons.
MISSION
Our mission is to be the first choice of all users by being the market leaders.
VISION
Our vision is to be regarded as the best cement company in the country through
quality, innovation, technology, and modern management, thereby contributing to
the social and economic development of Bangladesh. A binder that build your neat
envision
ACI Limited:
ACI falls under income stocks. They have long and sustained records of paying
higher than average dividends. Investors who are looking for safe and high level of
current income, ACI stock is suitable for them. Their dividend tends to increase
over time but due to pandemic and a decline in economy their dividend payout
ratio decreased. These sorts of companies pay high dividends because they offer
limited growth potential.
ACI stock also falls under defensive stock. Defensive stocks tend to hold their
value and even do well when the economy is performing well. As ACI is a
Pharmaceutical and chemical company, stock prices will be stable or even increase
despite the fact the economy is slowing down and their finished products are
necessity goods. These sorts of stocks are suitable for aggressive investors.
ACI falls under Mid-Cap Stocks. Mid-Cap Stocks provide opportunity for greater
capital appreciation than Large-Cap stocks. It is also said to be less price volatility
than Small-Cap stocks. Have long-term track records for profits and stock
valuation.
ACI is paying a dividend but the company is unprofitable. They not be able to pay
dividend in the long run since they are at very precarious situation since their debt-
to-equity ratio is extremely high at 532%.

Company Analysis:

ACI: ACI is known to be one of the largest conglomerates of Bangladesh. They

operate through 3 segments: Pharmaceutical, Consumer Brands and Agribusiness.
ACI was established as the subsidiary of Imperial Chemical Industries (ICI) in
1968 and later on 5th May 1992 it was renamed as Advanced Chemical Industries
Limited (ACI Limited).
ACI’s Mission: ACI's Mission is to enrich the quality of life of the people through
responsible application of knowledge, technology and skills. ACI is committed to
the pursuit of excellence through world-class products, innovative processes and
empowered employees, to provide the highest level of satisfaction to our
customers.
ACI’s Vision: Provide products and services of high and consistent quality,
ensuring value for money to our customers. Endeavour to attain a position of
leadership in each category of our businesses. Develop our employees by
encouraging empowerment and rewarding innovation. Promote an environment for
learning and personal growth. Attain a high level of productivity in all our
operations through effective utilization of resources and adoption of appropriate
technology. Promote inclusive growth by encouraging and assisting our
distributors and suppliers in improving efficiency. Ensure superior return on
investment through judicious use of resources and efficient operations, utilizing
our core competencies.

ATLASBANG:
ATLASBANG falls under Cyclical Stocks. Cyclical Stocks performance is overall
related to the state of economy. Stock price is directly proportional to economy
(they do well when the economy is growing, and poor performance when the
economy is slowing down). Investor who tends to move in and out of the market as
economy changes, ATLASBANG is a suitable stock for them.
ATLASBANG is also falls under Small-Cap Stocks. Small-Cap stocks provide
opportunity for above average returns or losses. Most of the time they do not have
a financial track record. Earnings are highly unstable and can have dramatic impact
on stock price. Stocks are not widely-traded and liquidity is an issue. They are
mostly IPOs. However Small-Caps have an immense potential for growth in the
future as they are yet developing.
 Capital Market Expectations

After choosing our 10 stocks, we had to develop Capital Market Expectations based on two
month (60 trading days) daily historical prices (adjusted closing price), where we had done
calculating Individual stock’s return, risk, variance, beta, covariance and correlations.

bxpharm Azizpi AtlasBa Square ARAMI BDT BANK

a pes ACI ng Pharma TCEM AL HAJ BAT HAI ASAI
Averag -
e 0.75
return -0.10% 0.13% -0.03% 0.00% -0.29% 0.77% 0.08% 0.50% % -0.07%
Varian 0.08
ce 0.17% 0.08% 0.01% 0.00% 0.02% 0.19% 0.10% 0.13% % 0.02%
2.76
SD 4.04% 2.77% 1.15% 0.34% 1.44% 4.30% 3.11% 3.54% % 1.34%
- - 0.7267 1.401
0.3091 0.04477 0.67337586 0.594328 0.2749034 81980 98876 0.2080
Beta 2.60 0.15 208188 745791 62 8617 697 3 4 304241

Individual Return
First, to calculate individual returns, we need to calculate the daily return of each company. The
formula we used for calculating daily return is: -

● = (Current Price-Previous Price)/Previous Price.

Interpret: After calculating the returns of 10 stocks we found that each company has some
negative and positive return except AllasBang.

Average Return
To calculate Average Return, we needed the daily return of each company, which we had already
calculated. So, for calculating Average return, the formula is: -
 ● =Average (all returns).

Interpret: The average return tells an investor or analyst about the past returns for a stock or
security. Also, it informs about the returns from a portfolio of companies. As we can see,
ARAMITCEM, AL HAJ and BAT have positive average return and rest of companies average
return is negative which is not good for these companies. Negative average means loss for a
company. Positive average return is profitable for a company.

Variance and Standard Deviation

Same like the way we calculated Average return, variance is also calculated by the same way.
The formula for variance is:

● =Var (all returns).

And in the time of computing SD, the formula would be like,

● =SQRT(Variance)

By sqrt, it meant, Square Root. We all know that; SD is the square root of variance. So, after
getting Power Grid’s Variance, we just construct the formula by =sqrt(variance).

Interpret: A high standard deviation and variance shows that the data is widely spread which is
less reliable and a low standard deviation and shows that the data are gathered closely around
the mean which is more reliable. So standard deviation is good for each company.

Beta for Individual Company

To calculate Beta, we need the individual daily return of the company, which we already have
and also the market price index return.

Now the formula for Beta calculation is,

=COVARIANCE.P (Return of Stock, Return of Market)/VAR.P (Return of Market).

Interpret: We know, If a stock has a beta of 1.0, it indicates that its price activity is strongly
related with the market. As we can see, BXPHARMA and BD thai are strongly related to the
market. Rest of companies beta are less than 1.
 Portfolio Selection
Based on 60 trading days risk-return trade-off and analysis, we have formed a portfolio with two
equally weighted securities where we have calculated portfolio return, portfolio variance,
portfolio standard deviation, portfolio beta and correlation

Portfolio Portfolio
Returns variance Portfolio SD Portfolio Beta Correlation
0.0067665081 0.00061406706 0.024780376 0.0160128
BXPHARMA and AZIZ 24 27 57 1.378578402 3605
-
0.0398738036 0.00049213799 0.022184183 0.3752984
BXPHARMA and ACI 8 09 35 1.456289554 133
- -
BXPHARMA and 0.0298262658 0.00041386835 0.020343754 0.1077311
ATLASBANG 1 6 72 1.279340415 06
BXPHARMA and - 0.00052705689 0.022957719 0.4081242
SQUAREPHARMA 0.1131535804 43 71 1.638417077 357
BXPHARMA and 0.00095370999 0.030882195 0.1568515
ARAMITCEM 0.1924091215 63 46 1.598893575 468
-
0.0062360944 0.00067025232 0.025889231 0.0301311
BXPHARMA and AL HAJ 75 15 77 1.164277409 2332
0.00074365196 0.027269982 0.0299276
BXPHARMA and BAT 0.1136304167 06 78 1.665120134 1281
- 0.00075005248 0.027387086 0.5104466
BXPHARMA and BDTHAI 0.2482541547 47 09 2.002723526 495
- -
BXPHARMA and 0.0500869418 0.00045281353 0.021279415 0.0567794
BANKASIA 7 83 83 1.405744356 744
-
0.0268797098 0.00021886250 0.014794002 0.231409667 0.1244327
AZIZPIPES and ACI 1 75 42 5 996
-
AZIZPIPES and 0.0369272476 0.00019757675 0.014056199 0.054460529 0.0136254
ATLASBANG 9 2 77 14 4039
 -
AZIZPIPES and 0.0464000669 0.00024842203 0.015761409 0.413537191 0.0047584
SQUAREPHARMA 4 27 61 2 94113
-
AZIZPIPES and 0.00058375184 0.024160957 0.374013688 0.2759527
ARAMITCEM 0.259162635 53 05 9 607
- -
0.0605174190 0.00042961763 0.020727219 0.060602476 0.0534681
AZIZPIPES and AL HAJ 2 11 57 75 3718
-
0.00048339181 0.021986173 0.440240248 0.1221723
AZIZPIPES and BAT 0.1803839302 03 16 2 117
- 0.00039123425 0.019779642 0.777843640 0.0151505
AZIZPIPES and BDTHAI 0.1815006412 54 45 3 9792
0.0166665716 0.00025259280 0.015893168 0.180864470 0.1263668
AZIZPIPES and BANKASIA 3 25 42 1 405
- -
0.0097130641 0.00003625611 0.006021305 0.132171680 0.0515593
ACI and ATLASBANG 18 776 321 5 3763
-
0.0930403787 0.00009285765 0.009636267 0.491248342 0.1453419
ACI and SQUAREPHARMA 4 487 684 5 544
0.00052947583 0.023010341 0.451724840 0.1989774
ACI and ARAMITCEM 0.2125223232 61 94 2 113
0.0138771072 0.00028362508 0.016841172 0.017108674 0.0404999
ACI and AL HAJ 2 84 42 57 0237
0.00035513846 0.018845117 0.517951399 0.0291318
ACI and BAT 0.1337436184 39 77 5 3326
0.00023776476 0.015419622 0.855554791 0.1328239
ACI and BDTHAI -0.228140953 07 59 6 837
- -
0.0299737401 0.00007641338 0.008741475 0.258575621 0.0851681
ACI and BANKASIA 8 97 259 4 1571
- -
ATLASBANG and 0.0829928408 0.00005355365 0.007318036 0.314299204 0.1926819
SQUAREPHARMA 7 414 222 1 865
ATLASBANG and 0.00048092851 0.021930082 0.274775701 0.1925558
ARAMITCEM 0.222569861 73 47 9 097
 -
0.0239246450 0.00025401763 0.015937930 0.159840463 0.1864048
ATLASBANG and AL HAJ 9 26 62 8 444
-
0.00031733184 0.017813810 0.341002261 0.1311871
ATLASBANG and BAT 0.1437911562 45 5 2 756
- 0.00019837514 0.014084571 0.678605653 0.0882429
ATLASBANG and BDTHAI 0.2180934151 36 12 2 9451
-
ATLASBANG and - 0.00004790290 0.006921192 0.081626483 0.0799380
BANKASIA 0.0199262023 793 667 08 3438
SQUAREPHARMA and 0.00053347206 0.023097014 0.633852363 0.0613608
ARAMITCEM 0.1392425464 92 29 9 2433
- -
SQUAREPHARMA and AL 0.0594026695 0.00029765226 0.017252601 0.199236198 0.0133091
HAJ 3 73 75 3 4265
0.0604638416 0.00039151571 0.019786756 0.700078923 0.1582320
SQUAREPHARMA and BAT 2 74 11 2 283
SQUAREPHARMA and - 0.00026733053 0.016350245 0.2108117
BDTHAI 0.3014207297 34 67 1.037682315 276
-
SQUAREPHARMA and - 0.00009831946 0.009915617 0.440703145 0.0112364
BANKASIA 0.1032535169 636 296 1 8008
0.00079216877 0.2242534
ARAMITCEM and AL HAJ 0.2461600324 62 0.028145493 0.159712696 885
-
0.00073405218 0.027093397 0.1451961
ARAMITCEM and BAT 0.3660265435 08 37 0.660555421 698
0.0041419721 0.00075927352 0.027554918 0.3200824
ARAMITCEM and BDTHAI 8 56 36 0.998158813 178
ARAMITCEM and 0.00052138170 0.022833784 0.401179642 0.0313915
BANKASIA 0.202309185 53 3 9 1884
-
0.00051674723 0.022732074 0.225939255 0.1735883
AL HAJ and BAT 0.1673813276 02 92 3 876
- 0.00044738801 0.021151548 0.563542647 0.0365899
AL HAJ and BDTHAI 0.1945032438 17 68 3 1852
AL HAJ and BANKASIA 0.0036639690 0.00029129055 0.017067236 - -
 0.033436522 0.0072362
29 29 24 81 18242
-
0.0746367326 0.00051239841 0.022636219 0.0027949
BAT and BDTHAI 1 17 02 1.064385372 51033
-
0.00035373752 0.018807911 0.467406202 0.0882639
BAT and BANKASIA 0.1235304802 68 28 2 3902
- 0.00024868773 0.015769836 0.805009594 0.1018399
BDTHAI and BANKASIA 0.2383540912 24 16 2 314

Now that we have done every calculation regarding the portfolio, it is time to see what is going
on. As we can see that, If the expected return of your overall portfolio is negative, it is likely that
most securities have a negative beta. We may want to diversify our portfolio by choosing more
securities with a positive beta to help stabilize the movement in our portfolio and produce a
return that is more likely to follow the market on an upswing. A positive beta suggests that a
security will move in the same direction as the market, so purchasing more securities with
positive betas will provide a more direct correlation to the movement of the market. Then, we
have the SD. Standard deviation is a mathematical tool to help us assess how far the values are
spread above and below the mean.

A high standard deviation shows that the data is widely spread which is less reliable and a low
standard deviation shows that the data are gathered closely around the mean which is more
reliable. So standard deviation is good for each company

Now we have a Portfolio BETA for each company. We know that:

● If a stock has a beta of 1.0, it indicates that its price activity is strongly related with the
market.
● A beta value of less than 1.0 means that the portfolio is less risky with the stock included
than without it and also with the lower expected return.
● A beta that is greater than 1.0 indicates that the security's price is theoretically more
volatile than the market. Some stocks even have negative betas.
● A beta of -1.0 means that the stock is inversely correlated to the market benchmark as if it
were an opposite, mirror image of the benchmark’s trends.
 Portfolio for 15 trading days
After the 60 days Analysis, we had to hold and monitor the portfolio performance for 15
(28.03.21 – 18.04.21) trading days and then, we had to measure the portfolio return.

Portfolio Returns
BXPHARMA and AZIZ -0.005957286463
BXPHARMA and ACI -0.001565892339
BXPHARMA and ATLASBANG -0.001033725902
BXPHARMA and SQUAREPHARMA -0.0004634670205
BXPHARMA and ARAMITCEM -0.00255337188
BXPHARMA and AL HAJ -0.004243568428
BXPHARMA and BAT -0.002322828715
BXPHARMA and BDTHAI 0.002675199172
BXPHARMA and BANKASIA -0.003519372201
AZIZPIPES and ACI -0.005455470379
AZIZPIPES and ATLASBANG -0.004923303942
AZIZPIPES and SQUAREPHARMA -0.004353045061
AZIZPIPES and ARAMITCEM -0.006442949921
AZIZPIPES and AL HAJ -0.008133146469
AZIZPIPES and BAT -0.006212406755
AZIZPIPES and BDTHAI -0.001214378868
AZIZPIPES and BANKASIA -0.007132859684
ACI and ATLASBANG -0.000531909818
ACI and SQUAREPHARMA 0.00003834906361
ACI and ARAMITCEM -0.002051555796
ACI and AL HAJ -0.003741752344
ACI and BAT -0.001821012631
ACI and BDTHAI 0.003177015256
ACI and BANKASIA -0.002741465559
ATLASBANG and SQUAREPHARMA 0.0005705155006
 ATLASBANG and ARAMITCEM -0.001519389359
ATLASBANG and AL HAJ -0.003209585907
ATLASBANG and BAT -0.001288846194
ATLASBANG and BDTHAI 0.003709181693
ATLASBANG and BANKASIA -0.002209299122
SQUAREPHARMA and ARAMITCEM -0.0009491304776
SQUAREPHARMA and AL HAJ -0.002639327026
SQUAREPHARMA and BAT -0.000718587312
SQUAREPHARMA and BDTHAI 0.004279440575
SQUAREPHARMA and BANKASIA -0.001639040241
ARAMITCEM and AL HAJ -0.004729231886
ARAMITCEM and BAT -0.002808492172
ARAMITCEM and BDTHAI 0.002189535715
ARAMITCEM and BANKASIA -0.0037289451
AL HAJ and BAT -0.00449868872
AL HAJ and BDTHAI 0.0004993391666
AL HAJ and BANKASIA -0.005059688018
BAT and BDTHAI 0.00242007888
BAT and BANKASIA -0.003498401935
BDTHAI and BANKASIA 0.001676868064

After doing all 15 days Portfolio Return, we can get the Average Portfolio

Beside this, we found that, equally weighted portfolio SQUAREPHARMA and BDTHAI have a
positive portfolio which is higher than the other companies’ portfolio. If we review the matter
from the company’s point of view, we can see that the BDTHAI portfolio is more profitable than the
others. Investor can be obtained lots of profits from here. And the AZIZPIPES portfolio is very risky from
other company. There is a high probability of loss, because they have no positive portfolio value.
 Evaluation the performance of Portfolio
There are 3 Types of Measures where we can evaluate the portfolio performances.

Sharpe’s measure
It is used to help investors understand the return of an investment compared to its risk. A
portfolio with a higher Sharpe ratio is considered superior.

Treynor’s Measure
Treynor Ratio uses the Portfolio Beta, which is a measure of systematic risk, that is, how
successful an investment is in providing investors compensation for taking on an investment risk.
Higher the Treynor’s Measure, the better.

Jensen's measure
It is a risk-adjusted performance measure that represents the average return on a portfolio or
investment, above or below that predicted by the capital asset pricing model (CAPM), given the
portfolio's or investment's beta and the average market return. The market value of Jensen’s
Measure is 0. Negative value is considered lower than the market and positive value is higher
than the market.

We have analyzed the Sharpe’s Measure, Treynor’s Measure and Jensen’s Measure for our 10
portfolios and compared it to the market.
Details Sharp's measure Treynor’s Measure Jensen’s measure
Market Performance -0.1919 times -0.873% 0.00 %
Measurement
BXPHARMA and -0.433 -0.00779 0.01450
AZIZ
BXPHARMA and ACI -2.586 -0.03939 -0.03071
BXPHARMA and -2.326328963 -0.036992708 -0.0239
ATLASBANG
BXPHARMA and -5.691052164 -0.079743786 -0.100661687
SQUAREPHARMA
BXPHARMA and 5.663752816 0.109393848 0.204177521
ARAMITCEM
BXPHARMA and AL -0.916832708 -0.020386975 -0.002423521
HAJ
BXPHARMA and BAT 3.525136685 0.05773182 0.12661112
BXPHARMA and -9.703630162 -0.132696376 -0.229093483
BDTHAI
BXPHARMA and -3.176165285 -0.048079113 -0.041854218
BANKASIA
AZIZPIPES and ACI 0.634021109 0.040532921 0.013615758
AZIZPIPES and 1.382112378 0.356721611 0.02042417
ATLASBANG
AZIZPIPES and -4.054210159 -0.154520726 -0.0563301
SQUAREPHARMA
AZIZPIPES and 10.00219629 0.646133129 0.248509108
ARAMITCEM
AZIZPIPES and AL 2.075407117 -0.709829389 0.041908066
HAJ
7.408471178 0.36998873 0.170942708
AZIZPIPES and BAT
AZIZPIPES and -10.06088162 -0.255836303 -0.184761896
BDTHAI
AZIZPIPES and -0.05243941 -0.004608027 0.00247737
BANKASIA
ACI and -4.519462587 -0.205891792 -0.024793608
ATLASBANG
ACI and -11.4712856 -0.225019342 -0.101547877
SQUAREPHARMA
ACI and 8.475420474 0.431728136 0.203291331
ARAMITCEM
 -0.215121174 -0.211757654 -0.003309712
ACI and AL HAJ
6.168367838 0.224429586 0.12572493
ACI and BAT
-15.9304128 -0.287113059 -0.229979673
ACI and BDTHAI
-5.430861356 -0.183597123 -0.042740408
ACI and BANKASIA
ATLASBANG and -13.73221419 -0.319736224 -0.094739466
SQUAREPHARMA
ATLASBANG and 9.351075687 0.746317304 0.210099742
ARAMITCEM
ATLASBANG and AL 0.403104094 -0.040194109 0.0034987
HAJ
ATLASBANG and 7.089508236 0.370352841 0.132533342
BAT
ATLASBANG and -16.72705638 -0.347172786 -0.223171262
BDTHAI
ATLASBANG and -5.407478755 -0.458505633 -0.035931996
BANKASIA
SQUAREPHARMA 5.270921379 0.19206767 0.133345473
and ARAMITCEM
SQUAREPHARMA -4.457453469 -0.385987437 -0.07325557
and AL HAJ
SQUAREPHARMA 2.171343366 0.061369997 0.055779072
and BAT
SQUAREPHARMA -19.50556195 -0.307339467 -0.299925531
and BDTHAI
SQUAREPHARMA -12.17811391 -0.27400194 -0.112686266
and BANKASIA
ARAMITCEM and AL 8.124214857 1.431696027 0.231583638
HAJ
ARAMITCEM and 12.86389222 0.527626498 0.36061828
BAT
ARAMITCEM and -0.484778349 -0.013382668 0.004913677
BDTHAI
ARAMITCEM and 8.093673067 0.460664414 0.192152942
BANKASIA
6.593385254 0.663370017 0.154017238
AL HAJ and BAT
AL HAJ and BDTHAI -10.02306011 -0.376197338 -0.201687366
 AL HAJ and -0.810677885 0.413799935 -0.0144481
BANKASIA
-4.070323428 -0.086563321 -0.072652724
BAT and BDTHAI
5.637546806 0.22684868 0.114586541
BAT and BANKASIA
BDTHAI and -16.22427073 -0.317827381 -0.241118062
BANKASIA

To calculate all these measures, we needed the Risk-Free rate of Market, which is 0.0175%. But,
as we are measuring the 12 days portfolios, we had to converting that Risk-free rate to 12 days
also.
Market Return 0.000805408
Market SD 1
Risk Free Rate ( 1 year) 0.7%
Risk Free Rate ( 12 days) 0.0005753424
Market Beta 10

First to calculate Jensen measure where we actually need everything including Market Return.
The formula for this is:
 = {(Return of Stock – Risk-Free Rate) + Beta of Stock (Return of Market – Risk-
Free Rate)}

Then to calculate Treynor Measures, we again needed the Return of the Portfolios, Risk-free
Rate of Return and the Beta of the Portfolio. The formula is:
 = Return of portfolio- Risk free rate ÷ beta of portfolio

Then lastly, we had to calculate Sharpe Measure, we needed the Returns of portfolios, Risk-Free
Rate and Standard Deviation of the Portfolio. The Formula for that is:
 =Return of portfolio- Risk free rate ÷ standard deviation of the portfolio

After all, 3 measurement we had done, we can clearly compare it with the market. From all these
10 portfolios, the Portfolio of ARAMITCEM and BAT is perfect for investing or doing well. If we
see that, the Sharpe measure of Market is, -0.1919 times, where, it is 12.86 times which is very
much better than the market. Then, the Treynor measure of Market is -0.873% which is a
negative return. But, in this portfolio, it is, 0.527626498 % which is average positive but, at least
positive than the market. And in the Jensen measure, where market’s return is 0%, the portfolio
of ARAMITCEM and BAT is 0.36061828 % that represents that, the actual return is higher than
the expected return.
This portfolio’s Sharpe’s Measure is higher than the market, its Treynor’s Measure is a lot higher
than the market and its Jensen’s Measure is also positive compared to the market. Therefore, the
return will be more than expected.
But, if we measure the performances of other portfolios, they are very much lower than the
market measures and not even close to that. Although, (ARAMITCEM and AL HAJ) is close to
the market measure but only Treynor’s measure is higher than that.
However, after all the considerations we came to a conclusion that of ARAMITCEM and BAT is
better performer among the 10 portfolios. Considering their Sharpe’s, Treynor’s and Jensen
Measures.

Sources
https://www.dsebd.org/

https://www.wsj.com/market-data

https://www.investing.com/

https://www.amarstock.com/

https://stockbangladesh.com/

https://www.bb.org.bd/en/index.php