WELCOME TO MY PRESENTATION

Sykot Ahmed Al Yeakub

ID # 13-006

EFFICIENT PORTFOLIO
CONSTRUCTION

CONSTRUCTION OF EFFICIENT PORTFOLIO

OBJECTIVES
Preparing variance Covariance Matrix to calculate Portfolio

Risk & Return

Maximizing Theta allowing & not allowing Short sell
Minimizing Risk by allowing & not allowing Short sell
Minimizing Risk for a given Return by allowing & not
allowing Short sell

SELECTION OF ASSET
ECONOMY ANALYSIS

Growing Economy
Moderate Future Inflation

SELECTION OF ASSET
INDUSTRY ANALYSIS
To achieve Vision 2021 Bangladesh needs to develop

several industries extensively including..

Power
Infrastructure
Housing

Finance

SELECTION OF ASSET
INDUSTRY SELECTION
Bank
NBFI
Engineering
Fuel & power
Textile
Pharmaceuticals & Chemicals
Cement

General Insurance

SELECTION OF ASSET
CRITERIA FOR SECURITY SELECTION
Must be listed in DSE before January, 2006
Must be A category stock
Must be the industry leader or closest competitor to the
industry leader

Company P/E ratio must be lower than the industry P/E

ratio
Company must be in the growth stage

SELECTION OF ASSET
P/E RATIO OF SECURITIES
Industry

Company
Pubali Bank
NCC Bank

Company P/E
11.97
10.38

Industry P/E

NBFI

Prime Finance

21.92

33.65

Insurance

Green Delta General

insurance

38.13

Fuel & Power

BOC
Summit Power

21.92
13
26

Cement

Aramit Cement

18

Pharmaceutical

Square Pharma

17.79

Engineering

Aftab Automobiles

6.66

Textile

Bextex

13.87

21.36
27.1
24.72
28.25

Bank

12.44

15.67

SELECTION OF ASSET
CORRELATION MATRIX
Pubali
Bank

Prime
NCC Bank Finance

Aftab
Automobiles

Sumit
Power

BOC

Square
Bextex Pharma

Aramit
Cement

Green
Delta

Index

Pubali Bank
NCC Bank

1.0000
0.7006

1.0000

Prime Finance

0.1744

0.1285

1.0000

Aftab
Automobiles

-0.0922

-0.1213

0.0992

1.0000

Sumit Power
BOC
Bextex

0.2643
0.1870
-0.0517

0.1593
0.1136
0.1424

0.1783
0.3437
0.2104

0.1003
0.0694
0.2130

1.0000
0.1946
0.3473

1.0000
0.1675

1.0000

Square Pharma

0.2794

0.3459

0.2847

0.1021

0.3515

0.0485

0.1658

1.0000

Aramit Cement

0.2565

0.2035

0.2411

0.2559

0.2413

0.3352

0.0724

0.4505

1.0000

Green Delta

0.1082

0.2522

0.4295

0.2887

0.1878

0.2100

0.3059

0.3881

0.3772

1.0000

Index

0.6823

0.6697

0.3213

0.1199

0.3181

0.3248

0.2311

0.5131

0.3619

0.2585 1.0000

PORTFOLIO CONSTRUCTION
CALCULATION OF RETURN
Capital gain return, rt = LN ( Pricet/ Pricet-1)
Return from Cash dividend is = LN (dividend amount/ Pricet-1)

Return from stock dividend= LN {( Pricet* % of stock dividend)/ Pricet-1}

So the final formula is= LN [{Pricet*(1+ % of stock dividend) +Cash
dividend}/ Pricet-1]
For the right share, return= LN [Pricet /{Pricet-1 +(right ratio* right
price)/(1+right ratio)}]

MAXIMUM THETA

Without
Short Sell

0.588388165

Portfolio
Return

0.046930667

Risk

0.073274757

With
Short Sell
0.666214377

0.058171493

0.081893586

Asset

Without
Short Sell

With Short
Sell

Pubali Bank

-0.3044

NCC Bank

0.35341

0.6502

Prime Finance

0.13122

0.16707

Aftab Automobiles

0.22518

0.26265

Summit Power

0.05536

0.16556

BOC

0.13745

0.18242

Bextex

-0.1903

Square Pharma

-0.0333

Aramit Cement

0.05473

0.04144

Green Delta

0.04266

0.05865

MINIMUM RISK
Asset

Portfolio
Return

Risk

Pubali Bank

0.00583

0.31541

0.30769

-0.0064

Aftab Automobiles

0.15154

0.16493

Summit Power

0.01728

0.02212

BOC

0.29647

0.32894

-0.0112

Square Pharma

0.2193

0.26422

Aramit Cement

-0.0893

Green Delta

0.01315

Prime Finance
0.529979743

0.03814196

0.064767179

With
Short Sell
0.512650373

0.036450173

With Short
Sell
0

NCC Bank

Without
Short Sell

Without
Short Sell

0.063648835

Bextex

MINIMUM RISK GIVEN RETURN

Asset

Portfolio
Return

Risk

Without
Short Sell
0.156266421

0.02

0.101938324

Without
Short Sell
0.554409848

0.04

0.065264593

With
Short Sell
0.214749528

0.02

0.074627376

Pubali Bank

Without
Short Sell

With Short
Sell

0.37893

0.23811

NCC Bank

0.05294

Prime Finance

-0.137

Aftab Automobiles

0.09171

Summit Power

-0.086

BOC

0.05437

0.43789

Bextex

0.38415

0.12642

Square Pharma

0.18256

0.48664

Aramit Cement

-0.1889

Green Delta

-0.0218

PORTFOLIO CONSTRUCTION
VARIANCE COVARIANCE MATRIX

MS EXCEL

THANK YOU