Risk and Return Tradeoff Memo

The process of portfolio construction can be quite complex. Analysts go through reams of statistics ? past performance, future potential, and industry knowledge and associate on personal insights into the market to arrive at the goal list (UOP, 2008). This memo go away be based on the Constructing and Managing a Portfolio Simulation which details the fundamentals of portfolio construction in relation to the risk of exposure-return tradeoff and the relationship mingled with enthronement agreement and enthronisation performance. As a treasury analyst for Casa Bonita Ceramics, I was tasked to select the best have a bun in the ovens and allocate company resources to construct a portfolio. This memo will detail my finiss made in the simulation, debate the Sharpe ratio and how it relates to investment decisions, and lastly, provide recommendations for changes in the organization?s investment system in order to improve its investment performance. Simulation DecisionsFrom excess cash generated in 2004, the company distinguishable to invest $800,000 in the stock market in which eighter from Decatur stocks had already been chosen. With the affection of a high return without the risk of losing capital in mind, I narrowed it down to the last 4 stocks worth(predicate) investing in: Desktop, Inc., Levinthal Defense Systems, Transconduit, Inc., and Goldstein and Delaney Bank.

This was an penetrative stock weft and showed wide judgment by diversifying the stock selection to make out stock-specific risks. The next task was to allocate the $800,000 in a style that maximized portfol io return and kept the portfolio risk benea! th 22 percent. I chose to distribute the pecuniary resource evenly between the four stocks which resulted in 20.45% portfolio risk, 12.74% portfolio return, and a Sharpe ratio of 38.46%. This was a good decision considering management would not approve of any risks higher up 22 percent which did not allow more currency to be allocated in stocks with higher returns and... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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