Investment Analysis

A Report
On
Efficient Frontier Construction
Submitted to
Farhan Shazia
Assistant Professor,
Department of Finance,
Jagannath University, Dhaka

Submitted by
Milon Saha
ID: B-120203108
B.B.A. 4th Year 2nd Semester (7th Batch),
Department of Finance,
Jagannath University, Dhaka

Date of Submission: 8 January, 2017

1

Declaration
I hereby announce that, this report comprises no bits and pieces which
has been recognized for the award of any other degree or diploma at any
university or equivalent organizations and that to the best of my
appreciative and faith, this report contains no objects previously existing
or written by another person, except where due reference is made in the
content of the report.

Milon Saha

8 January, 2017
Farhan Shazia
Assistant Professor,
Department of Finance,
Jagannath University, Dhaka.
Sub: Submission of the Report.
Dear Madam,
With due respect, we would like to inform you that, we are the student
of Department of Finance. It is our great pleasure to inform you that we
have got a chance to submit a report on Efficient Frontier Construction
as a requirement for course named Investment Analysis, Course no4208.
We therefore pray and hope that you would be kind enough to accept
this report and bless us heartily.
Sincerely yours
Milon Saha
ID: B-12020108
B.B.A. 7th Batch
4th Year 2nd Semesters
Department of Finance
Jagannath University, Dhaka.
3

Acknowledgement
All praises are due to Almighty Allah, the supreme authority of this
universe who has enabled me to submit the report in time for the course
named Investment Analysis, Course no-4208.

I express our cordial sense of gratitude, thanks, authentic appreciation

and deep regards to our honorable supervisor Farhan Shazia, Assistant
Professor, Department of Finance, Jagannath University, Dhaka for his
scholastic direction, pleasant support, constant encouragement,
precious guidance, overall management and continuous importance
throughout the thesis work.

Its a great pleasure to us to express limitless gratitude and cordial

admiration to my dearly loved parents, well-wishers and friends for their
ever ending wish, affections, support, sacrifice, inspiration,
encouragement and nonstop endorse in the long process of creating my
academic career which can never be repaid.

Milon Saha

Executive Summary
The efficient frontier is the set of optimal portfolios that offers the highest expected
return for a defined level of risk or the lowest risk for a given level of expected
return. Portfolios that lie below the efficient frontier are sub-optimal, because they
do not provide enough return for the level of risk.
In this report I use 7 company monthly closing price for last 8 years data to
construct and efficient frontier. Overall procedure is discussed in the whole report
for better understanding.
In this report I provide an introductory part where an introduction and key purpose
is described. In this part we explain the methodology, software and other key
element require to prepare the report and the main purpose which is learning to
construct efficient frontier also described.
In second part of the report I show key definition related to the report as well as
main procedure follow to construct efficient frontier.
In third part and final part I give a conclusion about whole report. I also provide all
the work of constructing efficient frontier in appendix section.
In my study I show how an efficient frontier can successfully constructed as per my
topic Efficient Frontier Construction.

Table of content

Part - I
Part - II

Acknowledgement
Executive Summary

4
5

1.1 Introduction
1.2 Objective of the report
1.3 Methodology of the study
2.1 Efficient Frontier
2.2 Why Efficient Frontier Matters
2.3 How Efficient Frontier Helps
2.4 Constructing Efficient Frontier

7
8
8
9
9
9
10
10
10

Step: 1 Collecting monthly closing price and calculate average return

Step: 2 Calculate Standard Deviation of each stock
Step 3 Constructing Correlation Matrix

11
Step 4 Constructing Covariance Matrix
11
Step 5 Monthly Standard Deviation & Average Return with Equal 12
Weights
Step 6 Monthly Standard Deviation & Average Return with Varying 12
Weights
Step 7 Construct Risk & Return Table and Efficient Frontier Graph
13

Part -III
APPENDIX

Conclusion
References

14
14
15 - 26

Introduction
Different combinations of securities produce different levels of return. The efficient frontier
represents the best of these securities combinations -- those that produce the maximum
expected return for a given level of risk. The efficient frontier is the basis for modern portfolio
theory.
In 1952, Harry Markowitz published a formal portfolio selection model in The Journal of Finance.
He continued to develop and publish research on the subject over the next twenty years,
eventually winning the 1990 Nobel Prize in Economics for his work on the efficient frontier and
other contributions to modern portfolio theory.
According to Markowitz, for every point on the efficient frontier, there is at least one portfolio
that can be constructed from all available investments that has the expected risk and return
corresponding to that point.

The relationship securities have with each other is an important part of the efficient frontier.
Some securities' prices move in the same direction under similar circumstances, while others
7

move in opposite directions. The more out of sync the securities in the portfolio are (that is, the
lower their covariance), the smaller the risk (standard deviation) of the portfolio that combines
them. The efficient frontier is curved because there is a diminishing marginal return to risk. Each
unit of risk added to a portfolio gains a smaller and smaller amount of return.

1.1 Objective of the report

The main objective of the report is to learn how to construct an Efficient Frontier.
This report has also some other objectives which are as follows:

1.2

Learn about data collection to make a portfolio.

Learn how to use Excel for Constructing Efficient Frontier.
To know and learn different Excel Formula and apply those formula.
To know why Efficient Frontier important and how it works in investment.

Methodology of the study

Every report need some methodology to prepare. In this report I use some method and software
to construct efficient frontier.
We use Data analysis tool pack and Solver as well as MS Excel to construct Efficient Frontier.

Sources of data
DSE(Dhaka Stock Exchange)
Website

Part-II
2.1

Efficient Frontier

The combinations of securities portfolios that maximize expected return for any level of expected
risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry
Markowitz.
A graphical representation of the set of portfolios giving the highest level of expected return at
different levels of risk. Harry Markowitz theorized that each level of risk contains one
combination of assets giving the highest expected return. An efficient set of portfolios is
represented as a line on a graph with risk as the x-axis and expected return as the y-axis; this
representation is the Markowitz efficient frontier.

2.2

Why Efficient Frontier Matters

When Markowitz introduced the efficient frontier, it was groundbreaking in many respects. One
of its largest contributions was its clear demonstration of the power of diversification.
Markowitz's theory relies on the claim that investors tend to choose, either on purpose or
inadvertently, portfolios that generate the largest possible returns with the least amount of risk.
In other words, they seek out portfolios on the efficient frontier.
However, there is no one efficient frontier because portfolio managers and investors can edit the
number and characteristics of the securities in the investing universe to conform to their specific
needs. For example, a client may require the portfolio to have a minimum dividend yield, or the
client may rule out investments in ethically or politically undesirable industries. Only the
remaining securities are included in the efficient frontier calculations.

2.3

How Efficient Frontier Helps

An Efficient Frontier helps Managers and executives from the IT & business sides of an
organization understand the tradeoffs between Portfolio value & cost. It is an applied economics
method that shows how companies manage their scarce resources. Specifically it will help in
understanding the following:
The concept of scarcity & its consequences.
The Concept of value & cost & its graphical presentation.
The concept of & relationships between value, cost & current operating practice.
Breaking the constraints & its influence on the Efficient Frontier.
9

2.4

Constructing Efficient Frontier

The efficient frontier is the set of optimal portfolios that offers the highest expected return for a defined
level of risk or the lowest risk for a given level of expected return.The efficient frontier is drawn from
the risk-returns of various combinations of portfolio assets.

The Solver Add-In

The Solver is an Excel Add-In that can be used to solve general optimization problems that may
be subject to certain kinds of constraints. In this assignment I show how it can be used to find
portfolios that minimize risk subject to certain constraints.
At first I activate solver add-in by clicking on the office button in Excel 2007 and then clicking on
the Excel Options box at the bottom of the menu. This opens the Excel options dialogue box. Click
AddIns, which displays the available AddIns for Excel. Then I ensure that the Solver Add-Ins is an Active
Application Add-In.

Selection of Companies
For making an efficient frontier I have taken 7 companies. The companies are:
BANGAS LIMITED
GRAMEENPHONE LTD.
BATA SHOE COMPANY(BANGLADESH) LTD
GLAXOSMITHKLINE BANGLADESH LTD.
BEXIMCO PHARMA
ACI LIMITED
LAFARGE SURMA CEMENT

Including of Price According to Date

For making the frontier I have taken the monthly closing price from February 2011 to December
2016 from the DSE website in a new Microsoft Excel Worksheet of all the companies that I have
selected above. I have made a table of those prices.

10

Calculation of Average Return and Standard Deviation from closing

price
After the including of prices I have made another table which includes the monthly returns of
every company of my portfolio. For calculating return from the prices I have used the formula in
excel which is (B2-B3)/B3.After calculating all the returns I determine the Average returns of
individual companies by using the formula in excel. For using the formula first I have clicked equal
sign (=) then write and select Average and then select the data from the column, closed the
bracket then press enter and got the result. Then by dragging I got the average returns of every
column.
After the calculation of average returns I have calculated the Standard Deviation of the
companies. Here I put the formula of Standard Deviation. First I pressed Equal sign (=) then write
Stedv and select STDEV and then select the returns from the column, closed the bracket and then
press the enter button and got the result.

Construction of Table-1: Monthly Standard Deviation and Average

Return
For constructing the table 1I have taken the standard deviation and average return of all companies
from the return table. In first column I have taken the companies name and copy the data of Standard
Deviation and Average Return from the above rows and paste in the columns by selecting paste special
and then select Values, Transpose and then select ok and got the values in columns.

Construction of Table-2: Correlation Matrix

For calculating Correlation Matrix first I select the Data option in Excel and then go to the Data
Analysis. From the Data Analysis I have selected Correlation and select ok. Then comes the input
range option and I have taken all return as the input and select ok and got the results in another
sheet. In the other sheet first we copy the result of correlation in the below. From that again we
copy those data and paste in the above where we get the result first by selecting paste special
and then select Values, Skip blanks, Transpose and select Ok. Then finally I have got the
Correlation Matrix according to the individual companies.

11

Construction of Table - 3: Covariance Matrix: Results

For calculating Covariance Matrix first I select the Data option in Excel and then go to the Data
Analysis. From the Data Analysis I have selected Covariance and select ok. Then comes the input
range option and I have taken all return as the input and select ok and got the results in another
sheet. In the other sheet first we copy the result of covariance in the below. From that again we
copy those data and paste in the above where we get the result first by selecting paste special
and then select Values, Skip blanks, Transpose and select Ok. Then finally I have got the
Covariance Matrix according to the individual companies.

Construction of Table - 4: Monthly Standard Deviation and Average

Return with Equal Weights
In table-4 I have shown the Standard Deviation and Average Return of all companies by
calculating the equal weights of portfolio. Here I copy the value of Standard Deviation and
Average Return from the table-1 and paste the second and third column. In the fourth column I
calculate weight by dividing 1 by the no. of companies here it is 8(1/8) and get the results which
is equal for all companies. Then I calculate the sum of all weights which is 1. For calculation sum
First I press Equal sign(=) then write sum and also select sum and then select data from the
column then closed bracket and press enter and get the result.
Then calculate the Expected Portfolio Return E(Rp) from the Average Return. For that first I press
the Equal sign(=) then write and select MMULT then write and select TRANPOSE and then select
weights from the column(D165:D172), and then select the Average Return column(C165: C172)
and then closed the bracket and then press the <CTRL><SHIFT> <ENTER> (hold down all three
keys at once) and then release and get the result.The Formula which is used to calculate the
Standard Deviation is given below:
MMULT(TRANSPOSE(D165:D172),C165:C172)
Then calculate the Standard Deviation( STD) of the portfolio from the Average Return. For that
first I press the Equal sign(=) then write and select SQRT then write and select MMULT then again
write and select MMULT then write and select TRANPOSE and then select weights from the
column(D165:D172), and then select the Covariance matrix from column(B153: I160) and then
again select weights from column (D165:D172)closed the bracket( double second bracket) and
then press the <CTRL><SHIFT> <ENTER> (hold down all three keys at once) and then release
and get the result. The Formula which is used to calculate the Standard Deviation is given below:
12

SQRT(MMULT(MMULT(TRANSPOSE(D165:D172),B153:I160),D165:D172))
After that I have calculated the Sharp Ratio (SR) dividing the Expected Portfolio Return E(Rp) by
the Standard Deviation of the portfolio.

Construction of Table - 5: Monthly Standard Deviation and Average

Return with Varying Weights
In table-5 I have shown the Standard Deviation and Average Return of all companies by
calculating the equal weights of portfolio first. Here I copy the value of Standard Deviation and
Average Return from the table-1 and paste the second and third column. In the fourth column I
calculate weight by dividing 1 by the no. of companies here it is 8(1/8) and get the results which
is equal for all companies. Then I calculate the sum of all weights which is 1. For calculation sum
First I press Equal sign(=) then write sum and also select sum and then select data from the
column then closed bracket and press enter and get the result.
Then calculate the Expected Portfolio Return E(Rp) from the Average Return. For that first I press
the Equal sign(=) then write and select MMULT then write and select TRANPOSE and then select
weights from the column (D165:D172), and then select the Average Return column(C165: C172)
and then closed the bracket and then press the <CTRL><SHIFT> <ENTER> (hold down all three
keys at once) and then release and get the result. The Formula which is used to calculate the
Standard Deviation is given below:
MMULT(TRANSPOSE(D165:D172),C165:C172)
Then calculate the Standard Deviation( STD) of the portfolio from the Average Return. For that
first I press the Equal sign(=) then write and select SQRT then write and select MMULT then again
write and select MMULT then write and select TRANPOSE and then select weights from the
column (D165:D172), and then select the Covariance matrix from column(B153: I160) and then
again select weights from column (D165:D172)closed the bracket( double second bracket) and
then press the <CTRL><SHIFT> <ENTER> (hold down all three keys at once) and then release
and get the result. The Formula which is used to calculate the Standard Deviation is given below:
SQRT(MMULT(MMULT(TRANSPOSE(D165:D172),B153:I160),D165:D172))
After that I have calculated the Sharp Ratio (SR) dividing the Expected Portfolio Return E(Rp) by
the Standard Deviation of the portfolio.
13

After that I have used the solver for determining risk and return by changing the weights and
made the Table-6 by using these results.

Construction of Table-6: Return and risk

I have made this table by using solver. For that first I had to go to the Data option and select
solver and there set target cell of Standard Deviation from Table-5 and then select equal to Min
and select by changing cell of Sum=1 ( Constraints) and then press Ok and get the result. Then
copy and transpose on the risk and return table. Then I have selected the target cell is equal to
Max and press solve and get the result and copy and transpose to the risk and return table. Now
assuming the returns from .30% to 4.00% I filled up the full table by using solver. Here I select
the target cell of SR from table-5 and press Add cell range from return column .30%= 1 and press
solve and get the result. Then I copy and paste over the risk and return table by using this method
and complete the table.

Construction of Efficient Frontier

To construct the efficient frontier first I go to the INSERT option and select the Scatter chart
option and then select scatter with smooth lines then go to DESIGN option then select the Select
option then click add then type Risk in series name then select the risk column from table 6 for
Series X Values then select the return column from table 6 for Series Y Values then click Ok then
click add again then select the standard deviation column of table-5 for Series X values then select
the average return column from table-5 for Series Y Values then Click Ok again click Ok and finally
got the frontier curve. Then in the graph select the series 2 line and click the right mouse button
then select Change series chart type option and go to the series 2 option and from the drop down
menu select the scatter type and then click ok and got the final and smooth efficient frontier
curve.

14

Part-III
Conclusion
Above all analysis and detail explanation we can easily construct efficient frontier which can help
in investment decision as well help to choice proper portfolio to increase expected profit and
minimize risk associate with the investment. It also help to reduce the chance of lose and hence
help in profit maximization for individual as well as for company or business firms.

Reference

http://financial-dictionary.thefreedictionary.com/Efficient+frontier
www.investopedia.com/terms/e/efficientfrontier.asp
https://books.google.com.bd/books?id=gGUTgp7dNZ8C&pg=PA122&lpg=PA122&dq=how+effic
ient+frontier+help++in+investment+decisions+making&source=bl&ots=a3ttgSArcc&sig=6B637B
VMo18uFWi19x22Xnz8WJ4&hl=en&sa=X&redir_esc=y#v=onepage&q&f=true

15

Appendix
Monthly Closing Price of Each stock
DATE

BANGAS
LIMITED

GRAMEE
NPHONE
LTD.

BATA SHOE
COMPANY(
BANGLADE
SH) LTD.

GLAXOSMI
THKLINE
BANGLADE
SH LTD.

BEXIMC
O
PHARM
A

ACI
LIMITED

LAFARGE
SURMA
CEMENT

31-102016
29-092016
31-082016
31-072016
30-062016
31-052016
28-042016
31-032016
29-022016
31-012016
31-122015
30-112015
29-102015
30-092015

163.40

273.2

1171.40

1593.00

77.20

414.20

73.70

180.40

269.8

1180.30

1601.30

83.10

436.90

79.20

200.30

263.9

1180.70

1567.40

82.80

434.90

75.60

189.80

276.4

1185.80

1591.20

86.70

450.1

69.4

162.90

254.7

1205.40

1724.10

83.50

455.1

79.1

167.90

255.1

1169.90

1754.00

82.60

457.60

81.20

166.50

246.4

1170.30

1711.60

81.00

525.30

57.50

177.60

226.8

1170.40

1798.60

84.10

542.80

66.90

196.40

256.6

1236.00

1802.80

87.30

555.2

74.5

201.50

256.7

1303.40

1801.40

86.40

545.60

71.40

233.50

253

1317.70

1799.80

84.10

561.60

74.60

251.90

265.5

1331.20

1851.40

77.00

507.40

81.60

349.90

248.6

1351.50

1897.80

71.30

556.00

83.50

377.40

285.1

1357.80

2130.20

71.50

580.60

107.60

16

31-082015
30-072015
30-062015
31-052015
30-042015
31-032015
26-022015
29-012015
30-122014
30-112014
30-102014
30-092014
31-082014
24-072014
30-062014
29-052014
30-042014
31-032014

357.40

316.7

1304.60

2140.40

65.80

547.00

112.50

357.80

330.5

1323.20

2106.10

69.70

585.20

127.00

308.70

329.7

1259.90

2028.90

62.80

517.10

118.10

317.90

323.5

1179.80

1744.80

57.50

527.00

117.00

309.60

323.7

1144.10

1603.30

44.80

534.00

106.60

359.60

358.2

1354.90

1859.80

56.30

535.20

114.50

358.40

335.3

1379.50

1790.20

57.40

436.00

116.40

284.20

329.3

1231.40

1482.20

56.30

356.00

124.50

283.90

361.9

1172.10

1512.00

58.70

389.90

123.00

300.60

122

1126.80

1446.70

61.10

380.60

107.40

358.00

144.1

1243.70

1481.20

65.40

453.70

134.50

494.60

381.9

1120.50

1438.50

69.90

478.60

137.30

477.10

323.7

1047.80

1450.60

55.70

343.9

105.3

496.70

307.5

967.40

1520.40

42.90

266.6

85.4

516.30

300.3

972.90

1549.80

41.60

260.7

83.3

502.80

266.3

993.00

1651.20

39.10

240.3

78.5

494.20

268.9

1147.40

1778.40

43.90

241.20

67.70

478.80

213.8

880.20

1306.20

50.20

186.70

49.70

17

27-022014
30-012014
30-122013
28-112013
31-102013
30-092013
29-082013
31-072013
30-062013
30-052013
30-042013
31-032013
28-022013
31-012013
30-122012
29-112012
31-102012
30-092012

540.30

214

867.90

1196.10

49.40

184.50

40.50

507.20

212.3

751.70

1032.20

54.20

178.70

39.90

477.20

200.9

690.00

955.70

47.20

33.50

442.90

203.2

724.20

974.80

47.80

171.50
172.50

367.70

192

702.00

954.70

43.50

158.40

30.90

493.80

189.4

721.20

959.40

44.60

161.40

33.20

469.60

213.3

806.10

1050.40

48.00

181.70

35.50

520.00

184.2

652.30

836.00

46.10

146.40

31.10

456.80

178.9

557.90

633.00

52.20

149.10

32.80

417.00

173.7

526.90

603.70

52.20

130.20

31.80

310.20

143.8

528.50

538.40

55.90

136.50

29.00

171.40

146.9

508.70

482.50

61.20

130.00

30.00

175.50

147.1

518.50

520.60

61.60

137.10

33.10

196.60

168.2

527.00

543.60

59.50

144.10

35.40

189.30

175

535.70

570.00

55.90

141.20

32.90

202.10

170.9

595.50

558.80

51.80

141.90

33.00

311.00

174.8

542.10

503.00

56.90

148.40

35.30

226.40

166.3

484.30

533.60

57.80

154.30

36.50

32.60

18

30-082012
30-072012
28-062012
31-052012
30-042012
29-032012
29-022012
31-012012
29-122011
30-112011
31-102011
29-092011
25-082011
31-072011
30-062011
31-052011
28-042011
31-032011

135.90

180.3

502.50

558.40

56.40

157.90

35.10

109.80

204.8

488.10

560.00

51.90

150.60

32.60

119.20

208.8

508.60

579.80

60.00

169.60

39.90

120.10

206.4

498.00

580.00

63.80

179.40

39.60

130.80

214.7

539.10

582.90

97.70

248.30

34.80

134.90

191.7

527.50

576.00

84.30

217.70

30.10

124.30

160.1

545.30

609.30

81.60

193.90

27.10

128.90

155.5

526.10

635.30

66.70

172.10

25.50

162.60

163.5

598.50

664.50

93.60

206.60

26.60

1,559.25

164.2

621.60

669.90

99.40

216.30

313.75

1,339.00

159.3

613.50

657.00

86.90

223.70

274.50

1,873.25

163.6

612.80

837.00

107.90

256.20

614.00

1,642.25

179.7

609.70

851.20

95.10

258.70

630.25

1,687.00

189.6

631.30

923.10

108.40

272.40

501.75

1,623.00

163.9

632.20

973.50

80.40

269.60

489.00

1,782.75

148.5

625.60

959.40

78.90

264.80

414.75

2,103.75

157.2

587.10

915.40

113.90

300.40

400.75

2,275.25

173.9

650.00

1,056.80

120.60

268.70

430.75

19

28-022011
31-012011

909.50

139.9

475.90

695.50

102.90

231.10

327.00

1,784.50

237.3

612.40

1,106.40

135.00

337.50

493.50

Average Return of Monthly Closing Price

DATE

BANGAS
LIMITED

GRAMEE
NPHONE
LTD.

BATA
SHOE
COMPANY
(BANGLAD
ESH) LTD.

GLAXOSMI
THKLINE
BANGLADE
SH LTD.

BEXIMC
O
PHARM
A

ACI
LIMITED

LAFARGE
SURMA
CEMENT

31-102016
29-092016
31-082016
31-072016
30-062016
31-052016
28-042016
31-032016
29-022016
31-012016
31-122015

-9.42%

1.26%

-0.75%

-0.52%

-7.10%

-5.20%

-6.94%

-9.94%

2.24%

-0.03%

2.16%

0.36%

0.46%

4.76%

5.53%

-4.52%

-0.43%

-1.50%

-4.50%

-3.38%

8.93%

16.51%

8.52%

-1.63%

-7.71%

3.83%

-1.10%

-12.26%

-2.98%

-0.16%

3.03%

-1.70%

1.09%

-0.55%

-2.59%

0.84%

3.53%

-0.03%

2.48%

1.98%

-12.89%

41.22%

-6.25%

8.64%

-0.01%

-4.84%

-3.69%

-3.22%

-14.05%

-9.57%

-11.61%

-5.31%

-0.23%

-3.67%

-2.23%

-10.20%

-2.53%

-0.04%

-5.17%

0.08%

1.04%

1.76%

4.34%

-13.70%

1.46%

-1.09%

0.09%

2.73%

-2.85%

-4.29%

-7.30%

-4.71%

-1.01%

-2.79%

9.22%

10.68%

-8.58%

30-112015

-28.01%

6.80%

-1.50%

-2.44%

7.99%

-8.74%

-2.28%

20

29-102015
30-092015
31-082015
30-072015
30-062015
31-052015
30-042015
31-032015
26-022015
29-012015
30-122014
30-112014
30-102014
30-092014
31-082014
24-072014
30-062014
29-052014

-7.29%

-12.80%

-0.46%

-10.91%

-0.28%

-4.24%

-22.40%

5.60%

-9.98%

4.08%

-0.48%

8.66%

6.14%

-4.36%

-0.11%

-4.18%

-1.41%

1.63%

-5.60%

-6.53%

-11.42%

15.91%

0.24%

5.02%

3.81%

10.99%

13.17%

7.54%

-2.89%

1.92%

6.79%

16.28%

9.22%

-1.88%

0.94%

2.68%

-0.06%

3.12%

8.83%

28.35%

-1.31%

9.76%

-13.90%

-9.63%

-15.56%

-13.79%

-20.43%

-0.22%

-6.90%

0.33%

6.83%

-1.78%

3.89%

-1.92%

22.75%

-1.63%

26.11%

1.82%

12.03%

20.78%

1.95%

22.47%

-6.51%

0.11%

-9.01%

5.06%

-1.97%

-4.09%

-8.69%

1.22%

-5.56%

196.64%

4.02%

4.51%

-3.93%

2.44%

14.53%

-16.03%

-15.34%

-9.40%

-2.33%

-6.57%

-16.11%

-20.15%

-27.62%

-62.27%

11.00%

2.97%

-6.44%

-5.20%

-2.04%

3.67%

17.98%

6.94%

-0.83%

25.49%

39.17%

30.39%

-3.95%

5.27%

8.31%

-4.59%

29.84%

28.99%

23.30%

-3.80%

2.40%

-0.57%

-1.90%

3.12%

2.26%

2.52%

2.68%

12.77%

-2.02%

-6.14%

6.39%

8.49%

6.11%

1.74%

-0.97%

-13.46%

-7.15%

-10.93%

-0.37%

15.95%

21

30-042014
31-032014
27-022014
30-012014
30-122013
28-112013
31-102013
30-092013
29-082013
31-072013
30-062013
30-052013
30-042013
31-032013
28-022013
31-012013
30-122012
29-112012

3.22%

25.77%

30.36%

36.15%

-12.55%

29.19%

36.22%

-11.38%

-0.09%

1.42%

9.20%

1.62%

1.19%

22.72%

6.53%

0.80%

15.46%

15.88%

-8.86%

3.25%

1.50%

6.29%

5.67%

8.94%

8.00%

14.83%

4.20%

19.10%

7.74%

-1.13%

-4.72%

-1.96%

-1.26%

-0.58%

2.76%

20.45%

5.83%

3.16%

2.11%

9.89%

8.90%

5.50%

-25.54%

1.37%

-2.66%

-0.49%

-2.47%

-1.86%

-6.93%

5.15%

-11.20%

-10.53%

-8.66%

-7.08%

-11.17%

-6.48%

-9.69%

15.80%

23.58%

25.65%

4.12%

24.11%

14.15%

13.84%

2.96%

16.92%

32.07%

-11.69%

-1.81%

-5.18%

9.54%

2.99%

5.88%

4.85%

0.00%

14.52%

3.14%

34.43%

20.79%

-0.30%

12.13%

-6.62%

-4.62%

9.66%

80.98%

-2.11%

3.89%

11.59%

-8.66%

5.00%

-3.33%

-2.34%

-0.14%

-1.89%

-7.32%

-0.65%

-5.18%

-9.37%

-10.73%

-12.54%

-1.61%

-4.23%

3.53%

-4.86%

-6.50%

3.86%

-3.89%

-1.62%

-4.63%

6.44%

2.05%

7.60%

-6.33%

2.40%

-10.04%

2.00%

7.92%

-0.49%

-0.30%

-35.02%

-2.23%

9.85%

11.09%

-8.96%

-4.38%

-6.52%

22

31-102012
30-092012
30-082012
30-072012
28-062012
31-052012
30-042012
29-032012
29-022012
31-012012
29-122011
30-112011
31-102011
29-092011
25-082011
31-072011
30-062011
31-052011

37.37%

5.11%

11.93%

-5.73%

-1.56%

-3.82%

-3.29%

66.59%

-7.76%

-3.62%

-4.44%

2.48%

-2.28%

3.99%

23.77%

-11.96%

2.95%

-0.29%

8.67%

4.85%

7.67%

-7.89%

-1.92%

-4.03%

-3.41%

-13.50%

-11.20%

-18.30%

-0.75%

1.16%

2.13%

-0.03%

-5.96%

-5.46%

0.76%

-8.18%

-3.87%

-7.62%

-0.50%

-34.70%

-27.75%

13.79%

-3.04%

12.00%

2.20%

1.20%

15.90%

14.06%

15.61%

8.53%

19.74%

-3.26%

-5.47%

3.31%

12.27%

11.07%

-3.57%

2.96%

3.65%

-4.09%

22.34%

12.67%

6.27%

-20.73%

-4.89%

-12.10%

-4.39%

-28.74%

-16.70%

-4.14%

-89.57%

-0.43%

-3.72%

-0.81%

-5.84%

-4.48%

-91.52%

16.45%

3.08%

1.32%

1.96%

14.38%

-3.31%

14.30%

-28.52%

-2.63%

0.11%

-21.51%

-19.46%

-12.69%

-55.29%

14.07%

-8.96%

0.51%

-1.67%

13.46%

-0.97%

-2.58%

-2.65%

-5.22%

-3.42%

-7.79%

-12.27%

-5.03%

25.61%

3.94%

15.68%

-0.14%

-5.18%

34.83%

1.04%

2.61%

-8.96%

10.37%

1.05%

1.47%

1.90%

1.81%

17.90%

-15.26%

-5.53%

6.56%

4.81%

-30.73%

-11.85%

3.49%

23

28-042011
31-032011
28-022011

-7.54%

-9.60%

-9.68%

-13.38%

-5.56%

11.80%

-6.96%

150.16%

24.30%

36.58%

51.95%

17.20%

16.27%

31.73%

-49.03%

-41.05%

-22.29%

-37.14%

-23.78%

-31.53%

-33.74%

1.12%

2.53%

1.35%

1.23%

0.07%

1.00%

0.75%

Standard 0.2883
deviation

0.2690

0.0932

0.1228

0.1319

0.1212

0.1819

Average
Return

Table 1 : Monthly Standard Deviation & Average Return

COMPANY NAME

Standard
Deviation

Average
Return

BANGAS LIMITED

0.2883

0.0112

GRAMEENPHONE LTD.

0.2690

0.0253

BATA SHOE COMPANY(BANGLADESH) LTD

0.0932

0.0135

GLAXOSMITHKLINE BANGLADESH LTD.

0.1228

0.0123

BEXIMCO PHARMA

0.1319

0.0007

ACI LIMITED

0.1212

0.0100

LAFARGE SURMA CEMENT

0.1895

0.0075

Table 2 : Correlation Matrix

Company

BANGAS
LIMITED

BANGAS GRAMEEN BATA

LIMITED PHONE LTD SHOE
COMPAN
Y(BANGLA
DESH)
LTD.
1
0.13686
0.45333

GLAXOSM
ITHKLINE
BANGLAD
ESH LTD.

BEXIMCO ACI
PHARMA LIMITE
D

LAFARGE
SURMA
CEMENT

0.49670

0.27599

0.48204

0.3113
2

24

GRAMEEN
PHONE LTD
BATA SHOE
COMPANY(
BANGLADE
SH) LTD.
GLAXOSMI
THKLINE
BANGLADE
SH LTD.
BEXIMCO
PHARMA
ACI
LIMITED
LAFARGE
SURMA
CEMENT

0.13686

0.21791

0.24372

0.13147

0.2543
8
0.5396
6

0.25359

0.45333

0.21791

0.83052

0.28340

0.49670

0.24372

0.83052

0.15961

0.4349
5

0.41254

0.27599

0.13147

0.28340

0.15961

0.31652

0.53966

0.43495

0.56862

0.5686
2
1

0.31132

0.25438

0.48204

0.25359

0.36891

0.41254

0.31652

0.4052
5

0.36891

0.40525

Table 3: Covariance Matrix: Results

COMPANY BANGAS
LIMITED

BANGAS
LIMITED
GRAMEEN
PHONE
LTD.
BATA
SHOE
COMPANY
(BANGLAD
ESH) LTD.
GLAXOSM
ITHKLINE

GLAXOSM
ITHKLINE
BANGLAD
ESH LTD.

BEXIMCO ACI
PHARMA LIMITED

LAFARGE
SURMA
CEMENT

0.081900

GRAMEEN BATA
PHONE
SHOE
LTD
COMPAN
Y(BANGL
ADESH)
LTD.
0.010458 0.011997

0.017327

0.010340

0.010724

0.025958

0.010458

0.071300

0.005381

0.007933

0.004596

0.008176

0.012742

0.011997

0.005381

0.008552

0.009362

0.003431

0.006007

0.006419

0.017327

0.007933

0.009362

0.014858

0.002547

0.006381

0.009462

25

BANGLAD
ESH LTD.
BEXIMCO
PHARMA
ACI
LIMITED
LAFARGE
SURMA
CEMENT

0.010340

0.004596

0.003431

0.002547

0.017137

0.008959

0.007797

0.010724

0.008176

0.006007

0.006381

0.008959

0.014487

0.009178

0.025958

0.012742

0.006419

0.009462

0.007797

0.009178

0.035407

Table 4 : Monthly Standard Deviation & Average Return with Equal Weights
Company Name
BANGAS LIMITED
GRAMEEN PHONE LTD
BATA
SHOE
COMPANY(BANGLADESH) LTD.
GLAXOSMITHKLINE BANGLADESH
LTD.
BEXIMCO PHARMA
ACI LIMITED
LAFARGE SURMA CEMENT
SUM
Expected Return
Standard Deviation
SR

Standard Deviation
0.288278265
0.268977333
0.093151844

Average Return
0.011166529
0.025316332
0.013473024

Weight
0.142857143
0.142857143
0.142857143

0.122786443

0.012270638

0.142857143

0.131866561
0.121244858
0.189546605

0.000736325
0.010035336
0.007487534

0.142857143
0.142857143
0.142857143
1

1.15%
11.37%
0.10108309

Table 5 : Monthly Standard Deviation & Average Return with Equal Weights
Company Name

Standard Deviation

Average Return

Weight

BANGAS LIMITED
GRAMEEN PHONE LTD
BATA
SHOE
COMPANY(BANGLADESH) LTD.
GLAXOSMITHKLINE
BANGLADESH LTD.

0.288278265
0.268977333
0.093151844

0.011166529
0.025316332
0.013473024

-0.048552063
0.112945016
1.171966125

0.122786443

0.012270638

-0.278398818

26

BEXIMCO PHARMA
ACI LIMITED
LAFARGE SURMA CEMENT
SUM
Expected Return
Standard Deviation
SR

0.131866561
0.121244858
0.189546605

0.000736325
0.010035336
0.007487534

-0.063317351
0.100574161
0.00478293
1

1.57%
9.32%
0.16842725

Table 6: Risk and Return

Return

Risk

0.50%

9.38%

1.04%

8.21%

1.50%

9.06%

7.00%

1.57%

9.89%

6.00%

1.97%

11.28%

5.00%

2.00%

11.47%

4.00%

2.50%

14.69%

3.00%

3.00%

18.31%

2.00%

3.50%

22.12%

1.00%

4.00%

26.05%

4.50%

30.05%

5.00%

34.09%

5.50%

38.16%

6.00%

42.25%

Efficient frontier

0.00%
0.00%

Risk
Series2

10.00% 20.00% 30.00% 40.00% 50.00%

27