Table of Contents

1.

Introduction..............................................................................................................................3

2.

Market Portfolio: KSE-100 Index...........................................................................................3

2.1.

3.

KSE-100 Index Portfolio Calculation...............................................................................3

2.1.1.

Realized Percentage Return.......................................................................................3

2.1.2.

Risk Calculation (Variance).......................................................................................3

2.1.3.

Standard Deviation....................................................................................................4

2.1.4.

Standard Deviation for 9 weeks.................................................................................4

2.1.5.

Beta Calculation (Using Calculator)..........................................................................4

Active Portfolio.......................................................................................................................4
3.1. Active Portfolio Calculations................................................................................................5
3.1.1. Realized Percentage Return...........................................................................................5
3.1.2. Risk Calculation (Variance)...........................................................................................5
3.1.3. Standard Deviation........................................................................................................6
3.1.4. Standard Deviation for 9 weeks.....................................................................................6
3.1.5. Beta Calculation (Using Calculator)..............................................................................6

4.

Levered Portfolio.....................................................................................................................6
4.1.

Levered Portfolio Calculations.........................................................................................7

4.1.1.

Realized Percentage Return.......................................................................................7

4.1.2. Risk Calculation (Variance)...........................................................................................7

4.1.3. Standard Deviation........................................................................................................7
4.1.4. Standard Deviation for 9 weeks.....................................................................................8
4.1.5. Beta Calculation (Using Calculator)..............................................................................8
5.

Passive Portfolio......................................................................................................................8
5.1.

6.

Passive Portfolio Calculations..........................................................................................8

5.1.1.

Realized Percentage Return.......................................................................................8

5.1.2.

Risk Calculation (Variance).......................................................................................8

5.1.3.

Standard Deviation....................................................................................................9

5.1.4.

Standard Deviation for 9 weeks.................................................................................9

5.1.5.

Beta Calculation (Using Calculator)..........................................................................9

Sharpes Index.......................................................................................................................10
6.1.

Market Portfolio (KSE-100 Index).................................................................................10

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7.

8.

9.

6.2.

Active Portfolio...............................................................................................................10

6.3.

Passive Portfolio.............................................................................................................10

6.4.

Levered Portfolio............................................................................................................11

Tryenors Index......................................................................................................................11
7.1.

Market Portfolio (KSE-100 Index).................................................................................11

7.2.

Active Portfolio...............................................................................................................12

7.3.

Passive Portfolio.............................................................................................................12

7.4.

Levered Portfolio............................................................................................................12

Differential CML...................................................................................................................13
8.1.

Market Portfolio..............................................................................................................13

8.2.

Active Portfolio...............................................................................................................14

8.3.

Passive Portfolio.............................................................................................................14

8.4.

Levered Portfolio............................................................................................................14

Differential SML....................................................................................................................15
9.1. Market Portfolio..................................................................................................................15
9.2. Active Portfolio...................................................................................................................15
9.3. Passive Portfolio.................................................................................................................16
9.4. Levered Portfolio................................................................................................................16

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1. Introduction
As part of the term project of the course Investment Portfolio Analysis, we operated four portfolios by
the name of Active, Passive, Levered and Market. We initially invested PKR 100 million in each of the
portfolio. We did a lot of buying and selling of stocks from Karachi Stock Exchange during the allotted
duration of 9 weeks. The report contains all the calculations for the individual portfolios.

2. Market Portfolio: KSE-100 Index

2.1. KSE-100 Index Portfolio Calculation
2.1.1.

Realized Percentage Return

Realized Rm = (W9 W0) / W0
Realized Rm = (PKR 92,051,774.76 PKR 100,000,000.00) / PKR 100,000,000.00
Rm = -7.95%

2.1.2.

Risk Calculation (Variance)

Total Risk of Stock i = (VARi) = ( Rit Average Ri)2/ n

Returns on KSE-100 Index

Week

Return

Return-Avg.

( Ri Average Ri)2

1
2
3
4
5
6
7
8
9

1.33
0.61
-0.31
-2.24
0.39
-2.10
-1.06
-1.23
-3.53

2.24
1.52
0.60
-1.33
1.30
-1.19
-0.15
-0.32
-2.62

5.02
2.31
0.37
1.76
1.68
1.42
0.02
0.11
6.84

( Rit Average Ri)2

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19.52

(VARi) = ( Rit Average Ri)2/ n

(VARi) = 19.52/9 = 2.168%

2.1.3.

Standard Deviation
SD Market= VAR Market
SD Market= 2.168 = 1.47%

2.1.4.

Standard Deviation for 9 weeks

SD for 9 week = SD Market x 9 = 4.42%

2.1.5.

Beta Calculation (Using Calculator)

m = 1

3. Active Portfolio
This was the portfolio, where active trading was done, many shares of different companies were bought
and sold. The name of the companies, whose shares trading were done are listed below.
Company Name
Ghani Glass
Fatima Fertilizer Limited
Bank of Punjab
Berger Paints
Century Paper & Board Mills Limited
Engro Foods Limited
Kot Addu Power Company Limited
DESCON CHEMICAL LTD
Engro Fertilizers Limited
Bolan Casting Limited
Lalpir Power Limited
Pakistan Petroleum Limited
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Symbol
GHGL
FATIMA
BOP
BERG
CEPB
EFOODS
KAPCO
DCH
EFERT
BCL
LPL
PPL

Pakistan Cables Limited

Byco Petroleum Pakistan Limited

PCAL
BYCO

The main rationale behind buying these stocks was that these all are big companies at the KSE. They
all have competitive managements. Their historical earnings and dividends have been impressive the
upside potential of the companies was very high.

3.1. Active Portfolio Calculations

3.1.1. Realized Percentage Return
Realized RA = (W9 W0) / W0
Realized RA = (PKR 107,932,823.01 PKR 100,000,000.00) / PKR 100,000,000.00
Ra = 7.93%

3.1.2. Risk Calculation (Variance)

Total Risk of Stock i = (VARi) = ( Rit Average Ri)2/ n

Active Portfolio
Week

Return

Return-Avg.

( Ri Average Ri)2

1
2
3
4
5
6
7
8
9

10.61
-1.26
-3.44
-4.79
3.08
5.17
0.69
-1.79
0.27

9.66
-2.21
-4.39
-5.74
2.13
4.22
-0.26
-2.74
-0.68

93.32
4.87
19.26
32.99
4.55
17.80
0.07
7.53
0.46

( Rit Average Ri)2

180.84

(VARi) = ( Rit Average Ri)2/ n

(VARi) = 180.84/ 9 = 20.09%
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3.1.3. Standard Deviation

SD A= VAR A
SD A= 20.09= 4.48%

3.1.4. Standard Deviation for 9 weeks

SD for 9 week = SD A X 9 = 13.45%

3.1.5. Beta Calculation (Using Calculator)

A = 1.21

4. Levered Portfolio
This was the portfolio, in which additional loan of PKR 50 million was taken apart from the PKR 100
million to do investments in the stocks. In this portfolio, weekly interest cost was also incurred. The
name of the stocks bought in this portfolio is given below.

Company Name

Symbol

Muslim Commercial Bank Limited

Pakistan State Oil
Sitara Chemicals

MCB
PSO
SITC

Pakistan Oilfields Limited

POL

4.1. Levered Portfolio Calculations

4.1.1.

Realized Percentage Return

Realized RL = {(W9 W0)-Interest } / W0 - Loan Amount

Realized RL = {(PKR 136,090,770 PKR 150,000,000) - PKR 1,035,000}/ (PKR 150,000,000-PKR 50,000,000
RL = -14.94%

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4.1.2. Risk Calculation (Variance)

Total Risk of Stock i = (VARi) = ( Rit Average Ri)2/ n

Levered Portfolio
Week

Return

Return-Avg.

( Ri Average Ri)2

1
2
3
4
5
6
7
8
9

8.22
2.91
-3.80
-2.19
-0.59
-2.96
-3.76
-1.30
-10.36

9.76
4.45
-2.26
-0.65
0.95
-1.42
-2.22
0.24
-8.82

95.2
19.8
5.1
0.4
0.9
2.0
4.9
0.1
77.8

( Rit Average Ri)2

206.31

(VARi) = ( Rit Average Ri)2/ n

(VARi) = 206.31/9 = 22.92%

4.1.3. Standard Deviation

SD L= VAR Market
SD L= 22.92= 4.78%

4.1.4. Standard Deviation for 9 weeks

SD for 9 week = SD L X 9 = 14.36%

4.1.5. Beta Calculation (Using Calculator)

L = 2.78
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5. Passive Portfolio
This portfolio was a silent portfolio. No active was done in this portfolio apart from the initial buying
of the stocks in Week 0. The companies in which investments were done are listed below;
Company Name

Symbol

Kohinor Textile
Arif Habib Limited
Nishat Mills Limited
Shell Pakistan

KTML
AHL
NML
SHEL

5.1. Passive Portfolio Calculations

5.1.1.

Realized Percentage Return

Realized Rp = (W9 W0) / W0
Realized Rp = (PKR 94,339,306.60 PKR 100,000,000.00) / PKR 100,000,000.00
Rp = -5.66%

5.1.2.

Risk Calculation (Variance)

Total Risk of Stock i = (VARi) = ( Rit Average Ri)2/ n

Passive Portfolio
Week

Return

Return-Avg.

( Ri Average Ri)2

1
2
3
4
5
6
7
8
9

3.68
6.34
0.20
-4.05
-2.38
-3.04
-0.68
-2.90
-2.50

4.27
6.93
0.79
-3.46
-1.79
-2.45
-0.09
-2.31
-1.91

18.21
48.06
0.62
11.98
3.19
5.99
0.01
5.35
3.64

( Rit Average Ri)2

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8

97.06

(VARi) = ( Rit Average Ri)2/ n

(VARi) = 97.06/9 = 10.78%

5.1.3.

Standard Deviation
SD p= VAR Market
SD p= 10.78= 3.28%

5.1.4.

Standard Deviation for 9 weeks

SD for 9 week = SD p x 9 = 9.85%

5.1.5.

Beta Calculation (Using Calculator)

P = 1.61

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6. Sharpes Index
Sharpes Excess Return to Volatility Ratio
Rp Rf / SDp
where Rf is 1.38% for 9 weeks

6.1. Market Portfolio (KSE-100 Index)

Market Portfolio

Rm

Rf

SDp

-7.95

1.38

4.42

= (-7.95-1.38)/4.42 = -2.11

6.2. Active Portfolio

Active Portfolio

Ra

Rf

SDp

7.93

1.38

13.45

= (7.93-1.38)/13.45 = 0.4869

6.3. Passive Portfolio

Passive Portfolio

Rp

Rf

SDp

-5.66

1.38

9.85

= (-5.66-1.38)/9.85 = -0.714

6.4. Levered Portfolio

Levered Portfolio

RL

Rf

SDp

-14.94

1.38

14.36

= (-14.94-1.38)/14.36 = -1.136

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Ranking According to Sharpes Ratio

Rank

Portfolio

1
2
3
4

Active
Passive
Levered
Market

7. Tryenors Index
Tryenors Excess Return to Relevant Risk Ratio
Rp Rf /
Where Rf is 1.38% for 9 weeks

7.1. Market Portfolio (KSE-100 Index)

Market Portfolio

Rm

Rf

-7.95

1.38

= (-7.95-1.38)/1 = -9.33

7.2. Active Portfolio

Ra
7.93

Active Portfolio

Rf

1.38

1.21

= (7.93-1.38)/1.21 = 5.41

7.3. Passive Portfolio

Rp

Passive Portfolio

Rf

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-5.66

1.38

1.61

= (--5.66-1.38)/1.61 = -4.37

7.4. Levered Portfolio

Levered Portfolio

RL
-14.94

Rf

1.38

2.78

= (-14.94-1.38)/2.78 = -5.87

Ranking According to Tryenors Ratio

Rank

Portfolio

1
2
3
4

Active
Passive
Levered
Market

8. Differential CML

Differential CML = Rf +

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( Rm Rf )x SDp
SDm

Data For CML Calculation

Rf
Rm
Ra
Rp
RL
SDm
SDa
SDp
SDL

1.38
-7.95
7.93
-5.66
-14.94
4.42
13.45
9.85
14.36

8.1. Market Portfolio

=

1.38+

(7.95 1.38) x 4.42

4.42

= -7.95
Differential Return: -7.95 + 7.95 = 0%

8.2. Active Portfolio

=

1.38+

(7.95 1.38) X 13.45

4.42

= -27.01
Differential Return: 7.93- 27.01 = -19.08%

8.3. Passive Portfolio

=

1.38+

(7.95 1.38) X 9.85

4.42

= -19.41
Differential Return: -5.6 + 19.41 = 13.81%

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8.4. Levered Portfolio

=

1.38+

(7.95 1.38) X 14.36

4.42

= -28.93%
Differential Return: -14.94+28.93= 13.99%

9. Differential SML
= Rf + (Rm Rf) x p
Data For SML
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Calculation
Rf

1.38

Rm
Ra
Rp
RL

-7.95
7.93
-5.66
-14.94
1
1.21
1.61
2.78

m
A
p
L

9.1. Market Portfolio

= 1.38 + (-7.95 1.38) x 1
= -7.95
Differential Return: -7.95 + 7.95= 0%

9.2. Active Portfolio

= 1.38 + (-7.95 1.38) x 1.21
= -9.90
Differential Return: 7.93 - 9.90 = -1.97%

9.3. Passive Portfolio

= 1.38 + (-7.95 1.38) x 1.61
= -13.64
Differential Return: -5.66 + 13.64 = 7.98%

9.4. Levered Portfolio

= 1.38 + (-7.95 1.38) x 2.78
= -24.55
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Differential Return: -14.94+ 24.55 = 9.61%

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