6005FIN Portfolio Management Assignment Brief | Coventry University

Assignment Task

You are required to present the risk-reduction benefits of portfolio diversification by constructing two different portfolios comprising of two shares each from FTSE100 companies. The first portfolio comprises of stocks whose returns are positively correlated, and the second portfolio comprises of stocks whose returns are negatively correlated.

You are required to use monthly data of share prices of the companies in the portfolio over the last FIVE years (for example, from April 2019 to March 2024) using Databases such as Quandl.com, Bloomberg, Yahoo Finance, or Google Finance (indicate the database you are using). Make sure you have 60 observations of returns for every selected company. The list of potential companies is provided in a separate spreadsheet.

The report must address the following:

1. Outline in the report the choice of companies you have made in creating the portfolios and provide an explanation and/or justification about why the particular portfolio was constructed.
2. Compute the monthly percentage price returns for each of the selected companies.
3. Compute the average monthly return for each stock and the standard deviation of monthly returns.
4. Compute the covariance and correlation between the pair of stocks selected in each portfolio.
5. Assuming equal weight between the pair of stocks, compute the portfolio return and portfolio standard deviation for each portfolio.
   

1. Compare the performance of two portfolios over the five-year period using reward-to-volatility (Sharpe) ratio and interpret your findings.
2. For each portfolio, graphically present portfolio effect by plotting portfolio return (vertical axis) and portfolio standard deviation (horizontal axis) by varying portfolio proportions across two assets. (You can assume the following weights: 100%:0%, 75%:25%, 50%:50%, 25%:75%, 0%:100%). Draw the Efficient Frontier and compute the Minimum-variance portfolio.
   Provide recommendations based on the academic literature about possible measures and strategies you can use for the enhancement of
3. risk-return performance of your portfolio. Discuss your results based on your understanding in relation to the concept and theory of portfolio diversification. You may assume that all investors and investments are based in the UK.

Assessed Module Learning Outcomes

The Learning Outcomes for this module align to the marking criteria which can be found at the end of this brief. Ensure you understand the marking criteria to ensure successful achievement of the assessment task. The following module learning outcomes are assessed in this task:

• Apply in detail fundamental analysis to determine the advantages of diversification.
• Design and construct an optimal portfolio.
• Critically evaluate the performance of a portfolio.

This document is intended for Coventry University Group students for their own use in completing their assessed work for this module. It should not be passed to third parties or posted on any website.