Portfolio Analysis proposed by Markowitz requires estimates of expected return and risk. Target prices provided by analysts can be used as the expected returns. Literature on the portfolio theory says the risk can be estimated from the historical data as it is more stable.
I have done the portfolio analysis using target price data from Sharekhan Value Line October 2006 recently using an excel spread sheet template. The template accommodates only 20 risky securities.
Out of the 95 correlations 17 were found to be negative when correletions were calculated using past 27 month data. The output that allows negative holdings or short selling gives an expected return of 92.50% and 17.44% standard deviation.
The highest return possible on a security was 68.7% and the lowest standard deviation on a security was 28.2%. The hedge portfolio enhanced the return and decreased the standard deviation.
The immediate questions are the level of confidence that we can have in target price estimates and the confidence in the risk estimated made using the past data (27 months in this case).
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment