Investment Portfolio Project
For my personal portfolio, the following values shall be taken into consideration.
Ri for every portfolio is calculated as follows
Disney= 2%(19.3)=0.386
Therefore, Treynor’s indices are calculated as follows:
(Ri-Rf)/beta
For Disney; (0.386-1)/1=-0.614
Citigroup= (1.12-1)/1= 0.12
General electric= (0-1)/1=-1
Morgan Stanley= (0.252-1)/1=0.748
Home depot= (0.5208-1)/1=-0.4792
Treynor’s indices are critical in determining the viability of an investment portfolio. Considering this investment platform, and the associated Treynor’s indices, a viable economic decision can be made out of it. The two modern portfolio theories, the Sharpe’s and Harry Markowitz’s Modern stipulate that an investment must consider both returns and the total risks that it is likely to attract (Reilly, & Brown, 2012). However, in a case of systematic risk portfolios, the industry’s portfolio performance must be carefully looked into before, making a decision to undertake a given investment.
Treynor’s indices, determine the viability of a given portfolio, and its likelihood to withstand market shortfalls during an economic recess. For example, a higher Treynor’s values signify that a portfolio is viable, and must be engaged. However, consideration of a portfolio must take cognizance of the Modern Portfolio Theory that does not only consider immediate returns but also focuses on the risks associated with a given portfolio (Bhalla, 2010). The magnitude of risk involved to associate with a given a portfolio highly dictates its suitability over the rest.
Considering the Treynor’s indices above, investing on Morgan Portfolio yields the highest returns. However, its risk level is quite high, thus calling for a diversification plan with a low-risk portfolio such as Disney or S%P portfolios. There are other alternative investment portfolios available for the list of calculated indices, but the decision taken must be consistent with the MIP theories, which articulates for both risks and returns in different cycles.
Therefore, Treynor’s indices are important in aiding the market information against the industry’s returns average, as well as in the determination of the best investment portfolio (Amenc, & 2003). In this case, the lower industrial returns exhibited by the Citigroup would be complemented by the higher industrial average returns exhibited by the low risky portfolios such as General Electric.
Based on my investment portfolio, I would do a little adjustment to ensure that it stays a reality during the low and high seasons. Stable portfolios are advisable since they subject an investor to lower levels of risks, while high-returns generating portfolios lead to higher but inconsistent returns, and also bear the greatest risks. Therefore, I would revise my portfolio by engaging in low-risky portfolios, but have average yields, while having about 40% of my investment at high risk, and profitable portfolios.
References
Amenc, N., & Le, S. V. (2003). Portfolio theory and performance analysis. Chichester, England: Wiley.
Bhalla, V. K. (2010). Fundamentals of investment management. S.l.: S Chand & Co Ltd.
Reilly, F. K., & Brown, K. C. (2012). Investment analysis and portfolio management. Mason, Ohio: South-Western Cengage Learning.
