Report on MIDCAPSTOCK and LARGCAP STOCK 2011

ABSTRACT
Volatility estimation is important for several reasons and for different people in the market.
Pricing of securities is supposed to be dependent on volatility of each asset. Mature markets
/ Developed markets continue to provide over long period of time high return with low
volatility. Amongst emerging markets except India and China, all other countries exhibited
low returns (sometimes negative returns with high volatility). The third and fourth order
moments exhibit large asymmetry in some of the developed markets. Comparatively, Indian
market show less of skewness and Kurtosis. Indian markets have started becoming
informationaly more efficient. Contrary to the popular perception in the recent past,
volatility has not gone up. To achieve higher returns in the long run you have to accept
more short-term volatility. The focus is on finding the driver mechanism responsible for the
average rate of return determination and the corresponding risk metrics affecting in
measuring the risk. The 12 parameter taken into consideration for both MIDSTOCK and
LARGESTOCK company where this parameter has its impact in determining the return. The
investor would focus on investing in the portfolio which provide the better return and avoid
minimal loss and risk associated during the volatility in the market.

INTRODUCTION:

DATA AND RISK METRICS

Sample
The sample of 10 each of the company from Midstock and Large stock are taken to identify
the risk associated with respect to 12 variables taken into consideration which determine
the firm returns associated with its size, beta.
Data
The data set consists of all the BSE 100 firms trading its stock in MIDSTOCK and
LARGESTOCK of 10 company. The following is the detail
For midstock The period is selected from the year August 2005 August 2011
monthly closed share price for finding the monthly return.
The company taken into consideration is as follow:
ASIAN PAINTS
EXIDE

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK
For Largestock The period is selected from the year January 2005 January 2011
monthly data.
The company taken into consideration is as follow:
AXIS BANK
TATA CHEMICALS
BHARATI AIRTEL
GRASIM
HUL
L&T
MAHINDRA & MAHINDRA
NESTLE INDIA
NTPC
SAIL

Risk Metrics
A variety of risk metrics are used to explain the average returns.
One-Factor Market Model. Using the single-factor model, where Rmt denotes the return on
the market returns from BSE 100 index, the estimate regression:
Rit rft = + [Rmt rft] + eit
where rft is the risk free rate of treasury bill in INDIA, and eit is the residual. Also, note that
emt = Rmt Avg(Rmt) is used .
= Cov (Rs; Rm) / Var (Rm). But the value is taken from the regression between The Rit
rft and Rmt rft.
SR (systematic risk) is the beta, in equation
TR (total risk) is the standard deviation of company return _i.
IR (idiosyncratic risk) is the standard deviation of the residual eit.
Size. For size (market capitalization), we take the natural log of average market capitalization
over the relevant period for each company. Size could be related to liquidity and the amount
of information available in the market, which are legitimate risk factors. We find that there is
little relation between the average international returns and size.

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Semistandard Deviations. The formula for semistandard deviation is:
A measure of dispersion for the values of a data set falling below the
observed mean or target value. Semideviation is the square root of semivariance, which is
found by averaging the deviations of observed values that have a result that is less than the
mean. The formula for semideviation is as follows:

Where:
n = the total number of observations below the mean
rt = the observed value
average = the mean or target value of a data set
In portfolio theory, semideviation evaluates the fluctuations in returns below the mean. It
provides an effective measure of downside risk for a portfolio. It's similar to standard
deviation, but it only looks at periods where the portfolio's return was less than the target or
average level. This allows investors to see how much loss can be expected from a portfolio,
instead of only looking at its expected fluctuations.
Semimean is the semistandard deviation with B = average returns for the market.
Semi-rf is the semistandard deviation with B = risk-free rate.
Semi-0 is the semistandard deviation with B = 0.
Downside Beta Measures. Down-_iw is the _ coefficient from the market model using
observations when company returns and market returns are simultaneously negative.
Down-_w is the _ coefficient from the market model using observations when company
returns are negative.
The Downside Beta 1(when company return are taken negative leaving market return
any value).
The Downside Beta 2(When both the company return and market return are taken
negative).
Downside beta is both intuitively and theoretically appealing, and empirically can provide a
better risk measure than the regular beta
Value at risk. VaR is a value at risk measure. It is the simple average of returns below the
5th percentile level. The semi-variance is applicable only when portfolio return distribution
is non-symmetrical. When the portfolio return is normally distributed semivariance below
the expected return is half the portfolios variance and hence variance may still be
used to quantify risk.

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Skewness. Skew is the unconditional skewness of returns. It is calculated by taking the Mean
divided by the [Standard Deviation of (ei)]. Skew 5%: [(Return at the 95th Percentile level
mean return) (Return at 5th Coskew1 represents coskewness definition 1. It is calculated by
(sum up ei _ em2)/T and divide by [square root of (sum of (ei 2)/T)] _ [(sum of (em2)/T)].
Coskew2 represents coskewness definition 2. It is calculated by (Sum up ei _ em2)/T and
divide by [standard deviation of(em)].
Spread. Kurt is the kurtosis of the return distribution.
REGRESSION ANALYSIS and INTERPRETATION.
Bivariate Regressions
These regressions examine the bivariate relation between the average returns and the average
risk measures. Comparing averages to averages over the same time period. This is consistent
with some of the early tests of asset pricing models. Time variation in the risk and returns
measures is very important. The second risk measure is total risk. Asset pricing theory says
that only systematic risk, or the part of variance that contributes to a well-diversified
portfolios variance, should be important. The 12 parameter are measured where the
correlation chart show the relationship between the risk associated and the interdependent
effecting the return.

Data obtained:
Mean
beta
skewness kurtosis
Stdev
Variation semistand riskfree semistand market residual risk IR market cap in cr. downside beta1 downside beta2
2.9699306 0.444833822 -0.239479904 0.530148036 7.532840039 56.74367905
7.818810764
8.208055859 6.417436456 9.298958709 0.456416704 0.392246428
EXIDE
2.057687204 0.722169238 -2.616709849 15.52680059 15.46814807 239.2636048
15.422559
14.16783182 14.12502772
8.632826997 0.718236879 -0.128074425
GILLETTE
1.979472998 0.638065378 1.569488343 9.63306911 11.21157993 125.6995245
11.20894951
10.10663245 9.685601635
8.078072472 0.638065378 0.374943657
GODREJ
1.044857287 0.36883705 -2.142891237 14.4173284 12.65860448 160.2402675
12.57679505
13.38809401 12.29837666
8.477304808
0.36883705 -0.282447988
JINDAL CAPITAL 4.752927145 2.673457159 2.685128758 8.44495248 40.29911679 1624.018814
40.22592995
35.54639387 32.49594941
1.594477243 0.525117999 0.635395995
NIRMA
0.671087845 0.361333991 0.221424859 5.525003869 13.61336325 185.3236591
13.5198031
14.33746201 13.30938319
7.974428332 0.357055631 0.131504497
P&G
1.536020897 0.342743338 1.33866973 3.797735983 7.773695349 60.43033937
7.766825137
9.215233795
7.18118711
8.137744404 0.349382423 0.057676034
SINTEX
0.992510206 1.710621633 -0.740213037 3.501796701 20.91421093 437.4042188
20.77277279
15.39025271 14.20001775
8.02407224 1.651270998 1.125256393
VIJAYA BANK 0.934403619 1.208405633 1.540619145 6.815446717 15.42302686 237.8697575
15.31909271
10.99412832 10.97702424
7.763960261 0.590906583 0.576507196
YES BANK
3.129269227 1.341488697 0.704412232 4.581920616 15.30863383 234.3542698
15.39661812
9.943818875 9.427335253
8.489083122 0.979884413
1.01082121
COMPANIES
ASIAN PAINTS

As it can been seen that average return of the firm range from 0.671 to 4.75 that means the
portfolio would provide the return above the mean of 2.03% on investment. If an assets
contributes positive skewness to a diversified portfolio then the assets will be valuable and
will have high price.
Chart 1. Correlation of MIDSTOCK Company.

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Mean

beta

skewness

kurtosis

Stdev

Variation

1
0.598384106
0.407684507
-0.081398408
0.58749594
0.679761365
0.596506363
0.583377653
0.555422018
0.013792176
-0.066127923
0.290382342

semistand riskfree semistand market residual risk IR market cap in cr. downside beta1 downside beta2

1
0.447091844
-0.068086628
0.922854855
0.883683684
0.923949545
0.792120076
0.801367691
-0.552741166
0.462092566
0.676344557

1
-0.45336799
0.360463906
0.439725748
0.362698072
0.321650747
0.293583673
-0.505734662
-0.161646467
0.441368348

1
0.153224541
0.099163062
0.147998022
0.219462868
0.28016472
-0.2281151
-0.196951129
-0.588338577

1
0.979350984
0.999925661
0.960828317
0.968993749
-0.630786239
0.221596175
0.383184028

1
0.980729805
0.977097152
0.968807634
-0.577160366
0.083523649
0.315611833

1
0.960881719
0.968458016
-0.62317907
0.219772296
0.385728674

1
0.994697146
1
-0.594404907 -0.620146817
0.007547788 0.036098412
0.155210945 0.158388566

1
-0.101189627
-0.195447621

1
0.742579957

From the table it is clearly can been seen that high correlation exists between as follow
Mean beta : 0.599, Mean Standard deviation : 0.575, Mean Variation : 0.679, Mean
semistandard risk free: 0.596, Mean semistandard market return: 0.583, Mean residual
risk : 0.555
Beta standard deviation: 0.922, Beta variation: 0.88368, Beta standard risk free: 0.924,
Beta IR: 0.501 and inverse relation between Beta Market capitalization: -0.553
Skewness is having high inverse correlation with market capitalization, standard deviation
show high correlation with variation, semistand risk free, semistand market returnand
residual risk(IR) above >0.95, and inverse correlation with Market capitalization of -0.630.
Chart 2. Mean vs Beta
5

beta
0.444833822

Mean
2.9699306

0.722169238
0.638065378
0.36883705
2.673457159
0.361333991
0.342743338
1.710621633
1.208405633
1.341488697

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

y = 1.0093x + 1.0165
R = 0.3581

4
3.5

Mean

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

4.5

3
2.5

2
1.5
1
0.5
0

0.5

1.5

2.5

Beta

Out of the 10 portfolio 6 of them give return above the mean average return that means the firm is
performing well in the market.
Chart 3. Mean Vs Skewness.

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

5
4.5

skewness
-0.239479904

Mean
2.9699306

-2.616709849
1.569488343
-2.142891237
2.685128758
0.221424859
1.33866973
-0.740213037
1.540619145
0.704412232

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

y = 0.3087x + 1.9352
R = 0.1662

3.5
3

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

2.5
2
1.5
1
0.5

0
-3

-2

-1

SKEWNESS

If an assets contributes positive skewness to a diversified portfolio then the assets will be
valuable and will have high price.

Chart 4. Mean Vs Kurtosis

5

kurtosis
0.530148036

Mean
2.9699306

15.52680059
9.63306911
14.4173284
8.44495248
5.525003869
3.797735983
3.501796701
6.815446717
4.581920616

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

4.5
4
y = -0.0217x + 2.1649
R = 0.0066

3.5

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

3
2.5
2

1.5
1
0.5

0
0

10

KURTOSIS

Chart 4. Mean Vs Standard Deviation

15

20

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

5

Stdev
7.532840039

Mean
2.9699306

4.5

15.46814807
11.21157993
12.65860448
40.29911679
13.61336325
7.773695349
20.91421093
15.42302686
15.30863383

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

3.5

y = 0.0803x + 0.7207
R = 0.3452

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

2.5
2

1.5
1
0.5
0
0

10

20

30

40

50

STDEV

When the total volatility of individual stock is decomposed into systematic volatility and
idiosyncratic volatility, it is clearly evident that idiosyncratic volatility has trended up.
Crosssectional regressions that the volatility of individual stocks maybe related to the amount
of institutional ownership.

Chart 5. Mean vs Variation

5

Variation
56.74367905

Mean
2.9699306

239.2636048
125.6995245
160.2402675
1624.018814
185.3236591
60.43033937
437.4042188
237.8697575
234.3542698

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

y = 0.0019x + 1.3765
R = 0.4621

4
3.5

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

4.5

3
2.5
2

1.5
1
0.5

0
0

500

1000

1500

2000

Variation

The table clearly show the variation in the return of the stock to be above 50% that describe the
volatility of the market and the trend involve in recognizing the investment inorder to averse risk.

Chart 6. Mean Vs SemiStandard Deviation

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

5

Mean
2.9699306
2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

4.5
y = 0.0819x + 0.6954
R = 0.3558

4
3.5

MEAN

semistand riskfree
COMPANIES
ASIAN PAINTS
7.818810764
EXIDE
15.422559
GILLETTE
11.20894951
GODREJ
12.57679505
JINDAL CAPITAL
40.22592995
NIRMA
13.5198031
P&G
7.766825137
SINTEX
20.77277279
VIJAYA BANK
15.31909271
YES BANK
15.39661812

2.5
2
1.5
1
0.5
0
0

10

20

30

40

50

SEMISTAND RISKFREE

Chart 7. Mean Vs Semi Standard Market Return

5
4.5

y = 0.0947x + 0.6692
R = 0.3403

Mean
2.9699306
2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

3.5

MEAN

semistand market
COMPANIES
ASIAN PAINTS
8.208055859
EXIDE
14.16783182
GILLETTE
10.10663245
GODREJ
13.38809401
JINDAL CAPITAL
35.54639387
NIRMA
14.33746201
P&G
9.215233795
SINTEX
15.39025271
VIJAYA BANK
10.99412832
YES BANK
9.943818875

3
2.5
2

1.5
1
0.5

0
0

10

15

20

25

30

35

40

SEMISTAND MARKET

In portfolio theory, semideviation evaluates the fluctuations in returns below the mean. It
provides an effective measure of downside risk for a portfolio. It's similar to standard
deviation, but it only looks at periods where the portfolio's return was less than the target or
average level. This allows investors to see how much loss can be expected from a portfolio,
instead of only looking at its expected fluctuations. Thus there six portfolio meeting the
target.

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Chart 8. Mean vs Residual Risk

residual risk IR
6.417436456

Mean
2.9699306

14.12502772
9.685601635
12.29837666
32.49594941
13.30938319
7.18118711
14.20001775
10.97702424
9.427335253

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

5
4.5

y = 0.0968x + 0.747
R = 0.3085

4
3.5

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

3
2.5
2
1.5
1

0.5
0
0

10

15

20

25

30

35

RESIDUAL RISK IR

Chart 9. Mean vs Market capitalization

5
4.5

market cap in cr.

9.298958709

Mean
2.9699306

8.632826997
8.078072472
8.477304808
1.594477243
7.974428332
8.137744404
8.02407224
7.763960261
8.489083122

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

4
3.5

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

y = -0.3777x + 4.8949
R = 0.4077

2.5
2

1.5
1
0.5
0
0

10

Market cap

It show inverse relationship between the market size and average return that means small
firm give high return and large firm provide low return due to stability in the market in long
run.

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Chart 10. Mean Vs Downsidebeta 1.

5

downside beta1
0.456416704

Mean
2.9699306

0.718236879
0.638065378
0.36883705
0.525117999
0.357055631
0.349382423
1.651270998
0.590906583
0.979884413

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

3.5

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

4.5

2.5
2

y = -0.2133x + 2.1484
R = 0.0044

1.5
1
0.5
0
0

0.5

1.5

DOWNSIDE BETA 1

Chart 11. Mean vs Downside Beta 2

5

downside beta2
0.392246428

Mean
2.9699306

-0.128074425
0.374943657
-0.282447988
0.635395995
0.131504497
0.057676034
1.125256393
0.576507196
1.01082121

2.057687204
1.979472998
1.044857287
4.752927145
0.671087845
1.536020897
0.992510206
0.934403619
3.129269227

4
3.5

MEAN

COMPANIES
ASIAN PAINTS
EXIDE
GILLETTE
GODREJ
JINDAL CAPITAL
NIRMA
P&G
SINTEX
VIJAYA BANK
YES BANK

4.5

y = 0.8075x + 1.6924
R = 0.0843

2.5
2
1.5
1
0.5
0

-0.4

-0.2

0.2

0.4

0.6

DOWNSIDE BETA 2

Data of LARGECAP STOCK Companies:

0.8

1.2

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Mean

COMPANIES
AXIS BANK
TATA CHEMICALS
BHARATI AIRTEL
GRASIM
HUL
L&T
MAHINDRA & MAHINDRA
NESTLE INDIA
NTPC
SAIL

beta skewness kurtosis Stdev Variation semistand riskfree semistand market residual risk IR market cap in cr. downside beta1 downside beta2
1.9 1.1667118 -0.055667717 0.5947647 12.9354535 167.30219
15.6478411
11.1631397
3.85494 11.11413868 1.17184265 0.76597758
2.119341 1.154348 -0.38936 0.774561 12.59563 158.6498
12.64122
12.51145
13.72893 10.98578526
1.152767
0.917226
1.335677 0.613789 -1.60299 5.245336 11.04104 121.9045
10.97982
10.98183
9.286976 13.97674234
0.613789
0.212155
2.294001 1.056736
1.40014 9.141795 17.8651 319.1616
17.85565
17.74591
17.35462 12.18206155
1.067097
0.605653
1.293217 0.646184 0.156948 0.005262 8.367118 70.00866
8.347272
8.335239
8.426123 13.12100976
0.338109
0.215777
2.606749 1.421123 -0.51937 6.543247 16.54914 273.8739
16.59314
16.44947
17.43333 7.974428332
1.420798
0.877411
1.636134 0.868746 -0.87429 3.185469 14.05888 197.6521
14.03636
13.96561
11.95016 12.15898185
0.875309
0.380292
2.924262 0.403746 -0.41256 0.80287 6.951646 48.32538
7.337472
6.978396
6.278001 11.97116209
0.42192
0.256054
1.539925 0.631086 -0.25321 0.452286 8.291248 68.74479
8.304388
8.245268
8.301206 14.11898751
0.62811
0.457345
2.578264 0.868746 0.439807 1.710894 14.9903 224.7092
15.05488
14.90186
12.10243 13.23417078
0.875309
0.661423

From the table it is evident that average return is 1.878 and for most of the firm the beta
value is greater than 1 with skewness being negative for six firm out of ten, A comparison of
a normal distribution with a distribution exhibiting positive excess kurtosis reveals the
following points. It is very interesting to note what happens when its move from a normal
distribution to a distribution with positive excess kurtosis. The effect of excess kurtosis is
therefore to increase the probability of very large moves and very small moves in the value
of the variable, while decreasing the probability of moderate moves.

Correlation matrix
Mean
beta
skewness
kurtosis
Stdev
Variation
semistand riskfree
semistand market
residual risk IR
market cap in cr.
downside beta1
downside beta2

Mean

beta

skewness

kurtosis

Stdev

Variation

1
0.244720677
0.332345617
0.181466058
0.296110884
0.353714481
0.2958967
0.309903782
0.301359084
-0.564536695
0.354120075
0.431865994

1
0.22280694
0.394941111
0.79479141
0.765739059
0.834681956
0.74541475
0.569822782
-0.581859193
0.962070702
0.892513085

1
0.186737147
0.372968143
0.439381014
0.380104948
0.362472475
0.286986986
-0.287539366
0.160188437
0.285932067

1
0.72529458
0.768504914
0.640529098
0.761306418
0.733865987
-0.131069971
0.443683337
0.144249899

1
0.991957126
0.974125398
0.989102184
0.754658528
-0.441114496
0.816691233
0.633915287

1
0.957980589
0.988153654
0.783729131
-0.452761401
0.787998097
0.605608399

semistand riskfree semistand market residual risk IR market cap in cr. downside beta1 downside beta2

1
0.930668765
0.602858014
-0.499865959
0.859065451
0.682734056

1
0.833294415
1
-0.403181584 -0.279522608
0.76780808 0.560146545
0.587218285 0.454275607

1
-0.543161339
-0.511330298

1
0.9091674

From the table the average return has inverse correlation with market capitalization (56.4%),
the variation of beta is dependent on risk free rate and market return fluctuation in the

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

market. Thus the stock has interdependence on risk free rate and market return in
determining the investment in various portfolio to go with. It is better to have a diversifiable
portfolio in order to averse the risk.
Chart 12. Mean vs beta

Mean

Mean

3.5

1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

y = 0.4438x + 1.6308
R = 0.0599

2.5

Mean

beta
COMPANIES
AXIS BANK
1.1667118
TATA CHEMICALS
1.154348
BHARATI AIRTEL
0.613789
GRASIM
1.056736
HUL
0.646184
L&T
1.421123
MAHINDRA & MAHINDRA
0.868746
NESTLE INDIA
0.403746
NTPC
0.631086
SAIL
0.868746

2
1.5

Mean

Linear (Mean)

0.5
0

0.5

1.5

Beta

The returns averaged 1.975 thus the beta value is more for the firm that providing high
return. The systematic risk associated with the fluctuation in the market, economic determine
the return on the various portfolio.

Chart 13. Mean vs skewness.

Mean
1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

2.5
2

MEAN

skewness
COMPANIES
AXIS BANK
-0.055667717
TATA CHEMICALS
-0.38936
BHARATI AIRTEL
-1.60299
GRASIM
1.40014
HUL
0.156948
L&T
-0.51937
MAHINDRA & MAHINDRA
-0.87429
NESTLE INDIA
-0.41256
NTPC
-0.25321
SAIL
0.439807

3.5 y = 0.2384x + 2.0731

R = 0.1105
3

1.5
1
0.5

0
-2

-1.5

-1

-0.5

SKEWNESS

0.5

1.5

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

If an assets contributes positive skewness to a diversified portfolio then the assets will be
valuable and will have high price. Thus there are six assets where the skewness is negative.

Chart 14. Mean vs Kurtosis

3.5

y = 0.0332x + 1.9281
R = 0.0329

Mean
1.9

2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

2.5

MEAN

kurtosis
COMPANIES
AXIS BANK
0.5947647
TATA CHEMICALS
0.774561
BHARATI AIRTEL
5.245336
GRASIM
9.141795
HUL
0.005262
L&T
6.543247
MAHINDRA & MAHINDRA
3.185469
NESTLE INDIA
0.80287
NTPC
0.452286
SAIL
1.710894

2
1.5
1
0.5
0

6
KURTOSIS

Chart 15. Mean vs Standard Deviation

10

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

3.5

Mean

1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

2.5

MEAN

Stdev
COMPANIES
AXIS BANK
12.9354535
TATA CHEMICALS
12.59563
BHARATI AIRTEL
11.04104
GRASIM
17.8651
HUL
8.367118
L&T
16.54914
MAHINDRA & MAHINDRA
14.05888
NESTLE INDIA
6.951646
NTPC
8.291248
SAIL
14.9903

y = 0.0461x + 1.4526
R = 0.0877

2
1.5
1
0.5

0
0

10

15

20

STDEV

3.5

In portfolio theory, semideviation evaluates the fluctuations in returns below the mean. It
provides an effective measure of downside risk for a portfolio. It's similar to standard
deviation, but it only looks at periods where the portfolio's return was less than the target or
average level. This allows investors to see how much loss can be expected from a portfolio,
instead of only looking at its expected fluctuations. Thus there five portfolio meeting the
target. Thus require to diversify the portfolio to the extend of 50% to get better return.

Chart 16. Mean vs Variation

3.5
3

Mean
1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

2.5

MEAN

Variation
COMPANIES
AXIS BANK
167.30219
TATA CHEMICALS
158.6498
BHARATI AIRTEL
121.9045
GRASIM
319.1616
HUL
70.00866
L&T
273.8739
MAHINDRA & MAHINDRA
197.6521
NESTLE INDIA
48.32538
NTPC
68.74479
SAIL
224.7092

y = 0.0022x + 1.6545
R = 0.1251

2
1.5
1
0.5
0

50

100

150

200

Variation

Chart 17. Mean vs Semistandard Risk free.

250

300

350

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

3.5

Mean
1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

3
2.5

MEAN

semistand riskfree
COMPANIES
AXIS BANK
15.6478411
TATA CHEMICALS
12.64122
BHARATI AIRTEL
10.97982
GRASIM
17.85565
HUL
8.347272
L&T
16.59314
MAHINDRA & MAHINDRA
14.03636
NESTLE INDIA
7.337472
NTPC
8.304388
SAIL
15.05488

y = 0.0449x + 1.4529
R = 0.0876

2
1.5
1
0.5

0
0

10

15

20

SEMISTAND RISKFREE

Chart 18. Mean vs Semi Standard Market return

3.5
3
2.5

Mean
1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

MEAN

semistand market
COMPANIES
AXIS BANK
11.1631397
TATA CHEMICALS
12.51145
BHARATI AIRTEL
10.98183
GRASIM
17.74591
HUL
8.335239
L&T
16.44947
MAHINDRA & MAHINDRA
13.96561
NESTLE INDIA
6.978396
NTPC
8.245268
SAIL
14.90186

y = 0.0486x + 1.433
R = 0.096

2
1.5
1
0.5
0

10
SEMISTAND MARKET

15

20

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

Chart 19. Mean vs Residual Risk
3.5

residual risk IR
COMPANIES
AXIS BANK
3.85494
TATA CHEMICALS
13.72893
BHARATI AIRTEL
9.286976
GRASIM
17.35462
HUL
8.426123
L&T
17.43333
MAHINDRA & MAHINDRA
11.95016
NESTLE INDIA
6.278001
NTPC
8.301206
SAIL
12.10243

Mean
1.9

MEAN

2.5

2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

y = 0.0384x + 1.6051
R = 0.0908

1.5
1
0.5

0
0

10

15

20

RESIDUAL RISK IR

Chart 20. Mean vs Market capitalization

3.5
3

Mean
1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

y = -0.1676x + 4.0481
R = 0.2782

2.5

MEAN

market cap in cr.

COMPANIES
AXIS BANK
11.11413868
TATA CHEMICALS
10.98578526
BHARATI AIRTEL
13.97674234
GRASIM
12.18206155
HUL
13.12100976
L&T
7.974428332
MAHINDRA & MAHINDRA12.15898185
NESTLE INDIA
11.97116209
NTPC
14.11898751
SAIL
13.23417078

2
1.5
1
0.5

0
0

10
Market cap

Chart 21. Mean vs Downside beta1

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Report on MIDCAPSTOCK and LARGCAP STOCK 2011

3.5
COMPANIES
AXIS BANK
TATA CHEMICALS
BHARATI AIRTEL
GRASIM
HUL
L&T
MAHINDRA & MAHINDRA
NESTLE INDIA
NTPC
SAIL

1.152767
0.613789
1.067097
0.338109
1.420798
0.875309
0.42192
0.62811
0.875309

Mean

1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

2.5

MEAN

downside beta1
1.17184265

y = 0.5746x + 1.5306
R = 0.1254

1.5
1
0.5
0

0.5

1.5

DOWNSIDE BETA 1

Chart 22. Mean vs Downside beta2.

3.5

Mean

1.9
2.119341
1.335677
2.294001
1.293217
2.606749
1.636134
2.924262
1.539925
2.578264

y = 0.5746x + 1.5306
R = 0.1254

2.5

MEAN

downside beta2
COMPANIES
AXIS BANK
1.17184265
TATA CHEMICALS
1.152767
BHARATI AIRTEL
0.613789
GRASIM
1.067097
HUL
0.338109
L&T
1.420798
MAHINDRA & MAHINDRA
0.875309
NESTLE INDIA
0.42192
NTPC
0.62811
SAIL
0.875309

2
1.5
1

0.5
0
0

0.5

1.5

DOWNSIDE BETA 2

Conclusion:
Risk is inseparable from return. Every investment involves some degree of risk, which can be
very close to zero in the case of a Treasury security or very high for something such as
concentrated exposure to Sri Lankan equities or real estate in Argentina. Risk is quantifiable
both in absolute and in relative terms. A solid understanding of risk in its different forms can
help investors to better understand the opportunities, trade-offs and costs involved with
different investment approaches. As expected monthly average return and monthly volatility
across markets vary over time and space. Their divergencies are highly demonstrable.
While stock prices have risen sharply over the last year, on a monthly basis they have

Report on MIDCAPSTOCK and LARGCAP STOCK 2011

been usually stable. Firms make a good deal of their money from exploiting the bumps and
wrinkles in markets, which drive profits in derivatives, arbitrage and all kinds of market
making. The returns on portfolio of stocks (index) are more or less normally distributed.
because normal distributions are fully described by their mean and standard deviation, the
risk of such portfolios can indeed be measured with one number. Confronted with nonnormal distributions, however, it is no longer appropriate to use the standard deviation as the
sole measure of risk. In that case investors should also look at the degree of symmetry of
the distribution, as measured by its so-called skewness, and the probability of extreme
positive or negative outcomes, as measured by the distributions, `kurtosis. A symmetrical
distribution will have a skewness equal to zero, while a distribution that implies a relatively
high possibility of a large loss (gain) is said to exhibit negative (positive) skewness. A
normal distribution has a kurtosis of 3, while a kurtosis higher than 3 indicates gain. Since
most investors are in it for the longer run, they strongly rely on compounding effects. This
means that negative skewness and high kurtosis are extremely undesirable features as one
big loss may destroy years of careful compounding. Higher order movements, skewness and
kurtosis, provide additional information about he nature of return distribution. Negative
skewness and high kurtosis are extremely harmful to investors (long only).

Reference:
http://www.efmaefm.org/efma2006/papers/310329_full.pdf
http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2005/wp11-05.pdf