BỘ GIÁO DỤC VÀ ĐÀO TẠO

ĐẠI HỌC KINH TẾ THÀNH PHỐ HỒ CHÍ MINH

Professor: Huỳnh Thị Cẩm Hà

Class Code: 23C1FIN50505102

Class: FNC02

Student Code: 31211020691

Email: linhtruong.31211020691@st.ueh.edu.vn

Họ và tên: Trương Ngọc Nhật Linh

Phone Number: 0902446738

LIST OF TABLES
Table 3.2.2: Mean return, variance, standard deviation, and beta of stocks in the
portfolio from November 2018 to November 2023

3.2.3. Correlation coefficient matrix between stocks

3.2.4 Variance-Covariance Matrix

3.2.5 CAPM Model and SML

3.2.6 Determine the optimal proportions of stocks in the portfolio to minimize

portfolio risk
Table of content:
CHAPTER I: INTRODUCTION
1.1. Research Rationale
1.2. Research Objectives
1.3. Scope of Research
1.4. Research Methodology
1.5. Significance of the Research Topic

CHAPTER II: THEORETICAL FOUNDATIONS

2.1. Concept of Investment Portfolio
2.2. Necessity of Portfolio Construction
2.3. Process of Constructing a Stock Investment Portfolio
2.4. Covariance and Correlation Coefficient
2.5 Efficient Frontier and Risk Aversion Level
2.6. Markowitz Model and Stock Portfolio Selection

Chapter III: EXCEL, EVALUATION AND RECOMMENDATION

3.1. Basis, scope of building the investment portfolio
3.2. Selection of stocks for the investment portfolio
3.2.1. Price change (%) of stocks at the end of each trading session from
November 2018 to November 2023
3.2.2. Mean Return, Variance, Standard Deviation and Beta of stocks
3.2.4 Variance-Covariance Matrix:
3.2.5 CAPM Model and SML
3.2.6 Efficien Frontier
CHAPTER I: INTRODUCTION
1.1. Research Rationale
With the active involvement of individual investors, the Vietnamese stock market has
grown more lively in recent years, progressively transforming into an alluring long-
term investment avenue for the economy. The Vietnamese stock market does,
however, also confront other obstacles, including information asymmetry among
investors, problems with transparency in the administration of auctions, and
information disclosure by listed businesses, among others. Specifically, individual
investors—especially those who are not familiar with the market—often invest in
stocks with a short-term profit attitude, without doing a thorough analysis of market
trends and company operations. These investors seem thus susceptible to hazards
associated with the market and professional investors. For this reason, the subject of
"PORTFOLIO MODELS" has been selected for this scholarly report.
1.2. Research Objectives
The research objectives are as follows
Systematize general theories about stock investment portfolios and effective stock
portfolio construction.
Develop methods and steps to build an effective stock investment portfolio on the
Vietnamese stock market.

1.3. Scope of Research

Regarding time: The database is synthesized and analyzed to build an effective
investment portfolio from November 2018 to November 2023.
Regarding quantity: The study mainly focuses on analyzing 25 stocks that are listed
on gasoline and basic materials fields on the Ho Chi Minh Stock Exchange (HOSE). I
would rather choose those fields for my report because:
The Viet Nam stocks market index saw a sharp decline between 2021 and 2002,
particularly after we passed the 1000 level in late 2022. The market begins to rebound
in early 2023 as the government implements advantageous policies. Fuel and basic
materials are the top industry groups in recovery.
In the fields of basic materials, they created a variety of goods, such as cotton and
wood. Investors may choose to consider this sector, particularly in 2023 when
numerous contractors are expected to win significant projects like the Long Thanh
airport and the Block B O Mon project. As a result, many stocks listed in basic
materials areas may see growth in the future.
For gasoline, the Block B O Mon project does affect the gasoline stocks in the future
and this field is also potential.

1.4. Research Methodology

The research primarily utilizes statistical and synthesis methods to process and
analyze secondary data collected from the stock market. Microsoft Office Excel is
used to support data processing and analysis.

1.5. Significance of the Research Topic

Theoretical significance: The study helps systematize theoretical issues related to the
theory of stock investment portfolios and methods of building effective stock
portfolios.
Practical significance: The research serves as a useful resource for individual investors
on methods to build effective investment portfolios, contributing to enhancing
efficiency and sustainability for investors in the Vietnamese stock market.

CHAPTER II: THEORETICAL FOUNDATIONS

2.1. Concept of Investment Portfolio
A collection of at least two different types of securities is called a securities
investment portfolio. Diversification is the primary goal of building a securities
portfolio in order to reduce risk.

2.2. Necessity of Portfolio Construction

A collection of at least two different types of securities is called a securities
investment portfolio. Diversification is the primary goal of building a securities
portfolio in order to reduce risk.
2.3. Process of Constructing a Stock Investment Portfolio
Depending on their viewpoint and strong points, investors may use distinct investing
procedures. In general, the following actions are involved in building a successful
investing portfolio:
Step 1: Determine your investment goals while taking your risk tolerance and
expected returns into account.
Step 2: Use a variety of approaches, methods, and tactics to choose investment
securities.
2.4. Covariance and Correlation Coefficient
The variability between the returns of two securities moving in the same direction or
opposite direction is measured by covariance. The returns of the two securities move
in the same direction if covariance is positive; in the opposite direction if covariance is
negative.
The covariance (𝜎𝑖𝑗) is calculated as follows:
𝜎𝑖𝑗 = ∑𝑛𝑖=1 𝑝𝑘[𝑟𝑖𝑘 − 𝐸(𝑟𝑖)][𝑟𝑗𝑘 − 𝐸(𝑟𝑗)]
In the case of a time series, covariance is calculated as follows:
𝜎𝑖𝑗 = ∑𝑛𝑖=1[𝑟𝑖𝑘 − 𝐸(𝑟𝑖)][𝑟𝑗𝑘 − 𝐸(𝑟𝑗)] 𝑛 − 1
Nevertheless, covariance does not reveal the magnitude of volatility; rather, it just
illustrates the direction of interaction between the returns of two assets. Using the
correlation coefficient, this variation is quantified. The following formula is used to
get the correlation coefficient (𝜌):

𝜌 = 𝜎𝑖𝑗 / (𝜎𝑖𝜎𝑗)
The value of the correlation coefficient falls between -1 and +1. When two securities'
returns move in the same direction, they have a positive correlation coefficient; when
they move in the opposite direction, they have a negative correlation coefficient.
When two securities' returns have no correlation, it is implied that the movement of
one has no bearing on the movement of the other. This is represented by a correlation
coefficient of 0.

2.5 Efficient Frontier and Risk Aversion Level

All sites that represent equally efficient investment portfolios are connected by the
efficient frontier. The inability to invest when one knows that negative things could
happen is known as risk aversion. Depending on their individual risk tolerance in the
relationship between return and investment risk, investors' levels of risk aversion are
shown by the risk aversion level, which shows that all investors are risk adverse. The
correlation between expected return and portfolio risk is used to assess the utility level
of an investment portfolio. Here's how the utility level is calculated:

𝑈 = 𝐸(𝑅) − 1/2𝐴𝜎^2
Where:
- 𝑈: Utility level of the investment portfolio
- 𝐴: Investor's risk aversion level
Using Markowitz's theory as a guide, investors aim to maximize their investment's
utility level. Investors will pick the portfolio with a greater utility level over one with
a higher predicted return when given a choice between two investment portfolios.
2.6. Markowitz Model and Stock Portfolio Selection
When distributing funds across high-risk assets, two issues must be resolved:
1. Determining the weights 𝑊𝑖 of each asset to reduce the risk of the portfolio 𝜎(𝑟𝑝)
for a given expected return 𝐸(𝑟𝑝).
2. Determining the weights 𝑊𝑖 for every asset in order to maximize the anticipated
return (𝐸) on the portfolio for a specific risk level (𝜎(𝑟𝑝)).

Given that all of the portfolio's securities are risky and that short sales are prohibited
(𝑋𝑖 > 0), the optimization problem can be stated as follows:

𝜎^2 = ∑ 𝑛 𝑖=1 ∑ 𝑛 𝑗=1 𝑋𝑖𝑋𝑗𝜎𝑖𝑗 → minimize

 𝐸(𝑟) = ∑ 𝑛 𝑖=1 𝑋𝑖𝐸(𝑟𝑖) → maximize
∑ 𝑛 𝑖=1 𝑋𝑖 = 1
𝑋𝑖 = 𝑢𝑖^2

Chapter III: EXCEL, EVALUATION AND RECOMMENDATION

3.1. Basis, scope of building the investment portfolio
The construction of an effective investment portfolio is based on past data. The
investment portfolio selects stocks that meet the expected investment criteria from the
stock portfolio of the Vietnamese market. The criteria for selecting stocks include a
yield rate greater than 0, and the stocks must demonstrate both negative and positive
correlations with each other. To simplify calculations, dividend factors are not
considered in the estimated stock interest value, only the price volatility factor through
trading sessions is taken into account, and the cost is considered as equal to 0.

3.2. Selection of stocks for the investment portfolio

3.2.1. Price change (%) of stocks at the end of each trading session from
November 2018 to November 2023
Based on the closing prices of trading sessions from November 2018 to November
2023, determine the percentage change in the prices of stocks at the end of each
month.
Figure 3.2.1: Return rate of 25 stocks each month in the VN portfolio from November
2018 to November 2023
3.2.2. Mean Return, Variance, Standard Deviation and Beta of stocks
Apply the functions AVERAGE(), VAR.P(), SQRT(VAR) in Microsoft Excel to
calculate the rate, variance, standard deviation and beta of 25 stock codes.
 Figure 3.2.2: Table for calculating rates, variances, standard deviations and a beta of
stocks in the VNIndex list from November 2018 to November 2023
Through data in table 3.2.2, we can see that there are 6 stock codes with negative
average monthly interest rates and 19 stock codes with positive average monthly
interest rates in the period from. The stock with the highest average monthly interest
rate is TNC with 2.88% and the lowest is APC with -2.24%. The stock with the lowest
risk is BRC with 7.62%.
3.2.3. Correlation coefficient matrix between stocks
“Data/Analysis/Correlation” in Microsoft Excel to determine the correlation
coefficient matrix.

3.2.4 Variance-Covariance Matrix:

3.2.5 CAPM Model and SML

The security market line (SML) is a line that represents the geometry of the capital
asset pricing model (CAPM), showing the systematic risk of a security compared to
the expected return of the entire market. at a certain time.
Calculation formula:

→ Because these factors can not adapt so that the portfolio is ineffective and does
not completely reflect reality or does not reflect the risk fluctuations of securities

Investors frequently use the stock market line to assess if a security delivers a higher
predicted return in relation to its level of risk.
SML is frequently used to assess securities that are similar and give comparable
returns in order to identify the one with the lowest market risk.

Moreover, SML can be used to compare securities with comparable risks and identify
the one with the highest predicted return.

In a market with equilibrium, every security needs to be above the SML line.
Consequently: Securities that are undervalued will be above the SML line. Overvalued
securities will be below the SML line.
3.2.6 Determine the optimal proportions of stocks in the portfolio to minimize
portfolio risk

Choose the objective, decision variable and constraints listed upon

Then, run the Solver, I got the solution below, the Excel suggested 19% in BMP, 3%
in DPR, 4% in TNC, 26% in BRC, 7% in DHM, 12% in DAG, 18% SVI and 11% in
BFC.
3.2.6 Efficien Frontier
We got the solution upon, where we must invest less in X and more in Y.
Reference:

VietnamBiz (2019) Đường Thị Trường Chứng Khoán (security market line - SML) LÀ
GÌ?, vietnambiz. Available at: https://vietnambiz.vn/duong-thi-truong-chung-
khoan-security-market-line-sml-la-gi-20191024172406583.htm (Accessed: 13
December 2023).

Tài Chính định Lượng - Luận Cuối KỲ - BỘ Giáo Dục và đào TẠO Trường đại học
Kinh tế tp HỒ Chí Minh (no date) Studocu. Available at:
https://www.studocu.com/vn/document/truong-dai-hoc-kinh-te-thanh-pho-ho-
chi-minh/tai-chinh-dinh-luong/tai-chinh-dinh-luong-luan-cuoi-ky/35551859
(Accessed: 13 December 2023).