# Assignment 1: Financial Case Study

818 Words 4 Pages
Figure 1 shows a Capital Market Line (CML), this line represents the relationship between risk and expected return of efficient portfolio that contains both risky and risk free assets. . The starting point of the CML shows the risk free return where the target return is 0.0036 with a standard deviation of 0.00018 (zero). The optimal market portfolio is where the target return is 0.0208 and the standard deviation is 0.03578. at this tangent point, the best portfolio for investors is generated.

We as the fund managers will use the strategy of buying and holding stocks for a longer period of time, that is until maturity. This strategy not only reduces risk but it will also reduce transactions costs because we will not
The annualised return of our portfolio is 0.08524%.

The annual return of portfolio is 0.0852%, which is above 0.0598% of the annual return of ASX200, and above 0.0428% of annual risk-free return.

The monthly standard deviation of our portfolio is 0.00224%, which is a lot below 0.03821% of the monthly standard deviation of ASX200

After comparing the performance of our portfolio against the benchmark portfolio( ASX200), we can conclude that our portfolio is outperforming, both return and risk are in advantages in the market.
3.2.1Quantitative Analysis
Quantitative performance is the numerical measurement of this portfolios’ performance.
We adopted Jensen portfolio performance measure which was originally based on capital asset pricing model, calculates the expected one period return on any security or portfolio.

The formula for calculation is:

The result is -4.03%, which indicates that our portfolio is less diversified and our portfolio is underperforming compare to the return of risk free assets.

3.2.1.1 Sharpe Ratio
This measure is based on capital market line, it considers the total risk of the portfolio being