BKMM, CHAPTER 7 APPENDIX A BKMM, 10e

March 2015-March 2020 (top 4 companies based on m-cap as on 31.3.2020

Step 1 ANNUALISED
Adjusted prices after corporate actions Rf: 10 yr- g-sec
Month Ril_close Tcs_close Hul_close Hdfc_close yield- annualised
Mar-15 412.35 1273.525 872.9 511.425 7.84%
Apr-15 431.425 1233.325 849.5 494.6 7.85%
May-15 438.575 1305.3 859.8 525.55 7.81%
Jun-15 500.225 1276.1 916.45 533.725 7.82%
Jul-15 500.825 1255 921.05 555.6 7.79%
Aug-15 428.4 1282.625 861.5 514.075 7.73%
Sep-15 430.25 1293.85 813.3 534.45 7.60%
Oct-15 473.925 1248.65 801.85 548.525 7.75%
Nov-15 484 1182.625 809.45 537.975 7.79%
Dec-15 506.3 1219.6 862.35 541.375 7.67%
Jan-16 517.525 1195.6 816.9 524.475 7.72%
Feb-16 483.275 1090.95 829.8 486.275 7.59%
Mar-16 522.625 1258.025 869.5 535.6 7.44%
Apr-16 491.275 1265.025 866.65 566.725 7.28%
May-16 479.475 1287.55 849.9 590.675 7.50%
Jun-16 484.725 1275.4 898.6 587.95 7.35%
Jul-16 507.75 1309.275 921.5 623.275 7.14%
Aug-16 529 1256.275 916.65 645.375 6.86%
Sep-16 541.05 1213.6 867.8 635.85 6.78%
Oct-16 525.6 1197.3 840.25 626.85 6.61%
Nov-16 496.375 1138.375 844.3 599.8 6.53%
Dec-16 540.05 1180.975 826.3 602.1 6.79%
Jan-17 521.7 1114.95 855.15 643.475 6.98%
Feb-17 619.125 1233.25 864.9 694.6 7.12%
Mar-17 659.6 1215.55 909.75 721.15 7.17%
Apr-17 697.4 1136.05 934.7 771.075 7.12%
May-17 670.3 1272.175 1066.8 816.675 6.58%
Jun-17 690.125 1182.175 1081.6 826.125 6.55%
Jul-17 806.925 1247.025 1153.35 891.675 6.60%
Aug-17 796.75 1248.375 1217.35 887.5 6.72%
Sep-17 782.15 1218.5 1175.15 901.525 6.95%
Oct-17 940.8 1308.15 1236.85 904.4 7.17%
Nov-17 922.6 1317.125 1273.75 926.025 7.35%
Dec-17 921.05 1350.2 1368.1 936.775 7.22%
Jan-18 961.15 1555.875 1369.65 1003.175 7.57%
Feb-18 952.45 1519.125 1316.35 941.9 7.61%
Mar-18 882.8 1424.65 1335.9 945.725 7.55%
Apr-18 963.1 1765.7 1509.05 972.3 7.85%
May-18 921.3 1744.8 1613.65 1068.075 7.94%
Jun-18 972.95 1847.2 1641.85 1054.025 7.80%
Jul-18 1185.85 1941.25 1731.6 1090.525 7.83%
Aug-18 1240.95 2078.2 1780.6 1031.125 8.02%
Sep-18 1258.2 2184.5 1607.65 1002.825 7.93%
Oct-18 1061.4 1937.6 1617.85 955.925 7.78%
Nov-18 1168.2 1970.6 1753.6 1058.575 7.37%
Dec-18 1121.05 1893.55 1818.05 1061.225 7.35%
Jan-19 1227.1 2014.6 1762.25 1040.575 7.43%
Feb-19 1231.55 1984.25 1731.35 1041.075 7.35%
Mar-19 1363.05 2000.4 1707.8 1158.25 7.42%
Apr-19 1391.8 2254.95 1753.95 1157.75 7.33%
May-19 1329.75 2196.85 1785.15 1212.45 6.97%
Jun-19 1252 2227.25 1787.3 1223.2 6.60%
Jul-19 1166 2205.4 1725.95 1125.9 6.62%
Aug-19 1248.35 2258.05 1880.1 1114.45 6.82%
Sep-19 1332.6 2099.2 1982.45 1227.35 6.54%
Oct-19 1464.2 2270.2 2176.75 1229.95 6.64%
Nov-19 1550.9 2052.7 2036.1 1274.25 6.85%
Dec-19 1514.1 2161.3 1923.25 1271.8 7.35%
Jan-20 1411.7 2079.3 2034.15 1225.7 7.43%
Feb-20 1328.65 2000.95 2174.9 1177.6 7.43%
Mar-20 1112.45 1823.05 2298.15 862 7.43%
Step 2 Step 3
RIL TCS HUL HDFC Bank STOCK RETURNS (Ri)
Monthly Monthly Monthly Monthly Annualised Annualised Annualised Annualised
hpr_ril hpr_tcs hpr_hul hpr_hdfcbk hpr_ril hpr_tcs hpr_hul hpr_hdfcbk
4.63% -3.16% -2.68% -3.29% 55.51% -37.88% -32.17% -39.48%
1.66% 5.84% 1.21% 6.26% 19.89% 70.03% 14.55% 75.09%
14.06% -2.24% 6.59% 1.56% 168.68% -26.84% 79.06% 18.67%
0.12% -1.65% 0.50% 4.10% 1.44% -19.84% 6.02% 49.18%
-14.46% 2.20% -6.47% -7.47% -173.53% 26.41% -77.59% -89.69%
0.43% 0.88% -5.59% 3.96% 5.18% 10.50% -67.14% 47.56%
10.15% -3.49% -1.41% 2.63% 121.81% -41.92% -16.89% 31.60%
2.13% -5.29% 0.95% -1.92% 25.51% -63.45% 11.37% -23.08%
4.61% 3.13% 6.54% 0.63% 55.29% 37.52% 78.42% 7.58%
2.22% -1.97% -5.27% -3.12% 26.60% -23.61% -63.25% -37.46%
-6.62% -8.75% 1.58% -7.28% -79.42% -105.04% 18.95% -87.40%
8.14% 15.31% 4.78% 10.14% 97.71% 183.78% 57.41% 121.72%
-6.00% 0.56% -0.33% 5.81% -71.98% 6.68% -3.93% 69.73%
-2.40% 1.78% -1.93% 4.23% -28.82% 21.37% -23.19% 50.71%
1.09% -0.94% 5.73% -0.46% 13.14% -11.32% 68.76% -5.54%
4.75% 2.66% 2.55% 6.01% 57.00% 31.87% 30.58% 72.10%
4.19% -4.05% -0.53% 3.55% 50.22% -48.58% -6.32% 42.55%
2.28% -3.40% -5.33% -1.48% 27.33% -40.76% -63.95% -17.71%
-2.86% -1.34% -3.17% -1.42% -34.27% -16.12% -38.10% -16.99%
-5.56% -4.92% 0.48% -4.32% -66.72% -59.06% 5.78% -51.78%
8.80% 3.74% -2.13% 0.38% 105.59% 44.91% -25.58% 4.60%
-3.40% -5.59% 3.49% 6.87% -40.77% -67.09% 41.90% 82.46%
18.67% 10.61% 1.14% 7.95% 224.09% 127.32% 13.68% 95.34%
6.54% -1.44% 5.19% 3.82% 78.45% -17.22% 62.23% 45.87%
5.73% -6.54% 2.74% 6.92% 68.77% -78.48% 32.91% 83.08%
-3.89% 11.98% 14.13% 5.91% -46.63% 143.79% 169.59% 70.97%
2.96% -7.07% 1.39% 1.16% 35.49% -84.89% 16.65% 13.89%
16.92% 5.49% 6.63% 7.93% 203.09% 65.83% 79.60% 95.22%
-1.26% 0.11% 5.55% -0.47% -15.13% 1.30% 66.59% -5.62%
-1.83% -2.39% -3.47% 1.58% -21.99% -28.72% -41.60% 18.96%
20.28% 7.36% 5.25% 0.32% 243.41% 88.29% 63.00% 3.83%
-1.93% 0.69% 2.98% 2.39% -23.21% 8.23% 35.80% 28.69%
-0.17% 2.51% 7.41% 1.16% -2.02% 30.13% 88.89% 13.93%
4.35% 15.23% 0.11% 7.09% 52.24% 182.80% 1.36% 85.06%
-0.91% -2.36% -3.89% -6.11% -10.86% -28.34% -46.70% -73.30%
-7.31% -6.22% 1.49% 0.41% -87.75% -74.63% 17.82% 4.87%
9.10% 23.94% 12.96% 2.81% 109.15% 287.27% 155.54% 33.72%
-4.34% -1.18% 6.93% 9.85% -52.08% -14.20% 83.18% 118.20%
5.61% 5.87% 1.75% -1.32% 67.27% 70.43% 20.97% -15.79%
21.88% 5.09% 5.47% 3.46% 262.58% 61.10% 65.60% 41.55%
 4.65% 7.05% 2.83% -5.45% 55.76% 84.66% 33.96% -65.36%
1.39% 5.12% -9.71% -2.74% 16.68% 61.38% -116.56% -32.93%
-15.64% -11.30% 0.63% -4.68% -187.70% -135.63% 7.61% -56.12%
10.06% 1.70% 8.39% 10.74% 120.75% 20.44% 100.69% 128.86%
-4.04% -3.91% 3.68% 0.25% -48.43% -46.92% 44.10% 3.00%
9.46% 6.39% -3.07% -1.95% 113.52% 76.71% -36.83% -23.35%
0.36% -1.51% -1.75% 0.05% 4.35% -18.08% -21.04% 0.58%
10.68% 0.81% -1.36% 11.26% 128.13% 9.77% -16.32% 135.06%
2.11% 12.72% 2.70% -0.04% 25.31% 152.70% 32.43% -0.52%
-4.46% -2.58% 1.78% 4.72% -53.50% -30.92% 21.35% 56.70%
-5.85% 1.38% 0.12% 0.89% -70.16% 16.61% 1.45% 10.64%
-6.87% -0.98% -3.43% -7.95% -82.43% -11.77% -41.19% -95.45%
7.06% 2.39% 8.93% -1.02% 84.75% 28.65% 107.18% -12.20%
6.75% -7.03% 5.44% 10.13% 80.99% -84.42% 65.33% 121.57%
9.88% 8.15% 9.80% 0.21% 118.51% 97.75% 117.61% 2.54%
5.92% -9.58% -6.46% 3.60% 71.06% -114.97% -77.54% 43.22%
-2.37% 5.29% -5.54% -0.19% -28.47% 63.49% -66.51% -2.31%
-6.76% -3.79% 5.77% -3.62% -81.16% -45.53% 69.20% -43.50%
-5.88% -3.77% 6.92% -3.92% -70.60% -45.22% 83.03% -47.09%
-16.27% -8.89% 5.67% -26.80% -195.27% -106.69% 68.00% -321.60%
 Stock

Step 4 Step 5 σexcess ri

Excess Returns RIL 95.94%
Annualised Annualised Annualised Annualised TCS 80%
hpr_ril hpr_tcs hpr_hul hpr_hdfcbk HUL 59%
47.66% -45.73% -40.02% -47.33% HDFC 72%
12.08% 62.22% 6.74% 67.28% Portfolio Risk = sqrt W1*W1*SD1*SD1+W2*W2*SD2*SD
160.87% -34.66% 71.25% 10.85% Covariance-Variance Matrix
-6.35% -27.63% -1.76% 41.40% Weights
-181.27% 18.68% -85.32% -97.42% Stocks
-2.42% 2.90% -74.74% 39.96% 45.04% RIL
114.07% -49.67% -24.64% 23.86% 27.72% TCS
17.72% -71.25% 3.58% -30.87% 5.51% HUL
47.62% 29.85% 70.76% -0.08% 21.74% HDFC
18.88% -31.33% -70.97% -45.18% Step 7 100%
-87.00% -112.62% 11.36% -94.99%
90.27% 176.34% 49.98% 114.29% Step 8 10.00% Mean Ret//Risk Premium
-79.26% -0.60% -11.21% 62.45% Step 9 66.76% SD
-36.33% 13.86% -30.70% 43.21% Step 10 14.98% Slope//Sharpe ratio
5.79% -18.68% 61.41% -12.89%
49.86% 24.73% 23.44% 64.96% a) Optimal Portfolio is the one that M
43.36% -55.44% -13.18% 35.69% b) Construct an Efficient frontier for g
20.55% -47.55% -70.73% -24.49%
-40.88% -22.73% -44.71% -23.60% Sort on Returns, ascendin
-73.25% -65.58% -0.74% -58.31% Step 11 SD*Sharpe
98.79% 38.11% -32.38% -2.19% Risk Risk prem
-47.75% -74.07% 34.92% 75.48% 48.01% 9.36%
216.98% 120.21% 6.56% 88.22% 54.74% 9.48%
71.28% -24.39% 55.06% 38.70%
61.65% -85.60% 25.80% 75.96% Min var p/f
-53.21% 137.20% 163.01% 64.38%
28.94% -91.44% 10.10% 7.34%
196.49% 59.23% 73.00% 88.62%
-21.86% -5.42% 59.86% -12.34%
-28.93% -35.66% -48.54% 12.02%
236.24% 81.12% 55.84% -3.34%
-30.56% 0.88% 28.45% 21.34%
-9.23% 22.92% 81.67% 6.71%
44.67% 175.23% -6.21% 77.49%
-18.47% -35.95% -54.31% -80.91% Step 12
-95.30% -82.18% 10.27% -2.67%
101.31% 279.42% 147.69% 25.87%
-60.02% -22.14% 75.24% 110.27% Note: It is a good practice to:
59.47% 62.63% 13.17% -23.59% (i) Create a portfolio which Maximize
254.76% 53.27% 57.77% 33.73% (ii) Create a portfolio which Minimize
 47.74% 76.64% 25.94% -73.38% (iii) Identify return in between these
8.76% 53.46% -124.48% -40.86% to create the efficient frontier
-195.48% -143.41% -0.17% -63.90%
113.37% 13.07% 93.32% 121.49% Efficient Frontier
-55.78% -54.27% 36.76% -4.34%
106.09% 69.28% -44.26% -30.78%
-2.99% -25.42% -28.39% -6.77%
120.71% 2.34% -23.75% 127.64%
17.98% 145.37% 25.10% -7.85%
-60.47% -37.89% 14.38% 49.73%
-76.76% 10.01% -5.15% 4.04%
-89.05% -18.39% -47.81% -102.07%
77.93% 21.83% 100.36% -19.02%
74.45% -90.96% 58.79% 115.03%
111.87% 91.11% 110.97% -4.10%
64.21% -121.82% -84.39% 36.37%
-35.82% 56.14% -73.86% -9.66%
-88.59% -52.96% 61.77% -50.93%
-78.03% -52.65% 75.60% -54.52%
-202.70% -114.12% 60.57% -329.03%
 Average Excess
Returns

16.41%
2.43%
13.63%
5.45%
1*SD1+W2*W2*SD2*SD2+W3*W3*SD3*SD3+W4*W4*SD4*SD4+2W1W2Cov12+2W1W3Cov13+2W1W4Cov14+2W2W3Cov23+2W2W
Variance Matrix Step 6
45.04% 27.72% 5.51% 21.74%
RIL TCS HUL HDFC
92.04% 33.69% 11.37% 34.58%
33.69% 64.31% 13.32% 17.14%
11.37% 13.32% 35.13% 7.95%
34.58% 17.14% 7.95% 51.74%
26.54% 10.38% 0.69% 6.96% (based on Bordered covariance)

Mean Ret//Risk Premium on p/f

lope//Sharpe ratio Excess Return/SD RP-Rf / Sd

Portfolio is the one that Maximizes the Sharpe Ratio

an Efficient frontier for given levels of risk

ort on Returns, ascending

Weights
RIL TCS HUL HDFC bk
1.24% 16.30% 52.16% 30.29%
25.00% 25.00% 25.00% 25.00%

is a good practice to:

portfolio which Maximizes Sharpe Ratio and
portfolio which Minimizes Risk,
return in between these do points and in the neighbourhood
e efficient frontier
W4Cov14+2W2W3Cov23+2W2W4Cov24+2*W3W4Cov34
0.58160237
0.41839763 0.58176973
0.76273831 0.697