Analysis of Investment and Risk Assignment Example | Topics and Well Written Essays - 1000 words

Analysis of Investment and Risk - Assignment Example In applying the methods of mitigating risk, making a portfolio is one of them which is, in fact, the most suitable and widely used methods in the entire investment industry (Cinnamon & Larsen, 2006). 1) Making of Efficient Portfolios comprising of 10 stocks in total. The companies which have been chosen for this purpose are BG Group, BHP Billion, BP, Barclays, British American Tobacco, HSBC, Glaxo Smith, Glencore, Unilever, Tesco. a) Short selling is one of the noteworthy activities of investment, which means to sell the assets without having its physical possession. The first part of assignment requires making a portfolio with including short selling allowed. For this purpose, following tabular data has been covered: From the tabular formation given above, it can be seen that lots of fluctuation are there among the mean return and standard deviation. The portfolio made with this particular stance would yield a return of 0.72% and a risk level of 3.53%. In this table, it can be found that short selling is not allowed; hence, an investor cannot take any position for a stock which has negative return. The portfolio return is 0.958% with standard deviation with the same 3.53% level. c) In this part, the return would be the same as in the section â€Å"b† because short selling is not allowed and 25% can be allotted to a single share. From this particular analysis, it can be said that the portfolio, which has been made without short selling, would yield the higher proportion of return in lesser risk adoption as compared to the portfolio in which short selling is allowed. In this scenario, in which portfolio has been diversified between 8 stocks and 2 stocks Coca-Cola and Google have been given 0 proportions. The average return of this portfolio is 0.822% with the same level of risk as illustrated above. From the analysis, it can be easily found that there are four stocks, which are above the level of CML; while other 6 stocks are located below the CML; hence there are only four stocks that can fill the gap of capital of an investor, while all other asset or shares would come below the level of average return.