Portfolio Position after & Before the Trading Day Analysis - Essay Example

The paper "Portfolio Position after & Before the Trading Day Analysis" is a good example of a finance and accounting essay. In the period prior to the trading-day, the standard deviation between the four stock options indicated. Three of these stock options have a lower standard deviation value. To be specific, the standard deviations for stock options belonging to Thorn Group, RCG Group and Primary Healthcare all have a value that is positioned below the 1 mark. It is only Wesfarmers Ltd.’s standard deviation that has a value of 1.29. In this regards, it can be noted that all of the former companies’ stock is less volatile hence relatively stable within the period. Wesfarmers Ltd is an exception within this period, it has a higher standard deviation, which technically means higher volatility hence high risks of choosing to hold onto this stock option is enormously uncertain and might result to possible losses or even profits.

In the trading day, the standard deviation for the four companies stock options are relatively low and are all below the +1 mark. Within this period, Wesfarmers Ltd standard deviation value remains to be higher in comparison to the other three options at 0.29. However, this value is still below the standard mark of 1 that shows a higher volatility position. The correlation coefficient for the four stocks seems to be in tandem with each other. For instance, the correlation coefficient for Thorn Group and Wesfarmers Ltd is 0.006 while that of RCG Group and Primary Healthcare is positioned at 0.83 with the period between 06/04/2017 and 13/04/2017. Despite the slight differences in the correlation values; these stock options have a return that is moving towards the same side.

For trading purposes, the current portfolio will adopt the modern portfolio that indicates that the underlying portfolio variance can be significantly reduced in order to select those assets classes that have a low or negative covariance in order to reduce the level of risks involved in holding them even further. For our case, the decision to improve the portfolio will be to sell shares belonging to Wesfarmers Ltd and Thorn Group and purchasing more shares of the other two companies; RCG Group and Primary Healthcare.

The objectives of this portfolio remain to be same and they include;

• Long-term capital growth for this investment portfolio consisting of both stock options and governments bond listed within the Australian Stock Exchange.
• To effective ensure that the investors enjoy a stable level of income for a longer period.
• To ensure that the investments bring in high total returns for the existing investors.

It is important to note that the amounts that will be accessed from the process of selling at least half of the shares held in both Wesfarmers and Thorn Group and re-invest into purchasing more shares of RCG, and Primary Healthcare stock options as well as in another class of assets.

The shift will also be focused on identifying and investing in high stock prices in a bid to have improved on the overall portfolio composition.

Another most common strategy for which the portfolio could be improved includes; asset allocation. Asset allocation involves a diversification process of adding a multiple set of assets that are deemed to be different in nature and could include; US stock options, international-based stocks as well as global bonds; while focusing on a distinctive percentage allocation to each of the class. Considering the fact that the existing classes have a different set of correlations to one another, it is important to adopt an efficient mix for purposes of reducing the overall portfolio uncertainties while at the same time improve on the expected returns (Fang, Lai & Wang, 2006).