Portfolio Optimization Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Portfolio Optimization Case Solution

Introduction

The case discusses the relative optimization of the portfolio in which there would be a guild line for the selected investor to make certain decision to invest or hold the share in the particular stock. So it has been analysed that different procedure are implemented in order to know the risk and expected return of the selected portfolio under the case. There are 12 industries included to generate the mean, variance and covariance of the given portfolio, therefore it is identified that these industries shows different trends according to the size of the shares. It is concluded that whether of these portfolios shows the negative or positive outcome depend on the historical performance under the given period.

Portfolio optimization using the standard method

From the following analysis, it is identified that different results shows different expected returns according to the size and historical performance of the industry. So certain calculations like mean, variance and standard deviation has been calculated in order to know the expected portfolio worth for the investor to hold the shares and to allow the critical evaluation of the sudden risk factor over the use of the forecasted year for holding the invested shares.

Mean

It is determined from the results that DurBl shows the minimum expected return as compared to other industries, which means that it has low expected generated returns but has high volatility of the certain stock prices. So this is the most risky for the portfolio optimization as it includes highest risk level of loss in the future.

The other portfolio returns shows moderate and high returns under high standard deviation and expected to grow at the same level in the future. Therefore it is concluded that these calculations may help the investors to judge the price fluctuations as well as the outcome generated results.

Portfolio Return

In order to analyse the portfolio return of the given stock, an assumed margin of investment has been determined to know the worth and value of the investment. So in each case, a certain portion of investment is given to each industry level and calculate the net portfolio of the stocks. This shows the accurate results of holding the certain amount of investment and generate the expected outcome with holding the certain portion of stocks.

Efficiency Frontier

The results also illustrate the direct relationship between the risk and return of the particular stock, thus it is determined that if the average mean would increase than the certain portion of the price volatility and the risk factor would also increase. So it is concluded that mean is directly proportional to the risk level of the portfolio.

Fama/French Three factors model

While the results generated through this model represent different results as compared to the traditional mode of implementing the portfolio of stock. So it suggests that there are three important factors to include while determining the optimal portfolio return of the particular stock. The first is the market risk premium, second is size of the risk premium and third is the value of certain risk factor. So the co-efficient analysis of these important factors under Fama/French model would enable to determine the optimal result of the particular stock.

Mean

Under the Fama/French factor model, it is analysed that the expected return would fall near to 1 and less than 1 because of the extraction of risk factor and concluded the pure expected return value. So it has been analysed that the best figure in the particular portfolio would be generated by Telcm but it has moderate price volatility so investor would go for the selected industry to hold the stock for future consideration...................

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Portfolio Optimization Harvard Case Solution & Analysis