In this article we will discuss about the Markowitz mean-variance analysis and its importance in portfolio management. Mean-Variance Theory: Concept of Mean Variance: Harry Markowitz is regarded as the father of modern portfolio theory. According to him, investors are mainly concerned with two properties of an asset: risk and return, but by diversification of portfolio it is possible to tradeoff [...]
Systematic risk can be measured using beta. Stock Beta is the measure of the risk of an individual stock in comparison to the market as a whole. Beta is the sensitivity of a stock's returns to some market index returns (e.g., S&P 500). Basically, it measures the volatility of a stock against a broader or more general market. It is [...]
Portfolio theories guide the investors to select securities that will maximize returns and minimize risk. These theories can be classified into different categories as depicted in figure 6.1. I. Traditional Approach: 1. Dow Theory: Charles Dow, the editor of Wall Street Journal, USA, presented this theory through a series of editorials. Dow formulated a hypothesis that the stock market does [...]