A Study on Comparative Analysis of Risk and Return with reference to

Selected stocks of BSE Sensex index, India.

P.Karthika,
Lecturer,
Department of Management Studies,
Maharaja Prithvi Engineering College,
Avinashi, Coimbatore-641 654,
Tamilnadu, India.

Dr. P. Karthikeyan,
Assistant Professor,
School of Management studies,
Kongu Enginerring College,
Perundurai, Erode-638 052,
Tamilnadu, India.

Abstract

The study aims to compare stocks of selected companies from different sectors like
Information Technology, Automobiles, Banking, Pharmaceuticals, and Oil Sectors in the
form of their risk, return and liquidity. The study also creating awareness about Stocks among
the investors to invest in the particular sectors. The risk/return relationship is a fundamental
concept in not only financial analysis, but in every aspect of life. If decisions are to lead to
benefit maximization, it is necessary that individuals/institutions consider the combined
influence on expected return or benefit as well as on risk/cost. The requirement that expected
return/benefit be commensurate with risk/cost is known as the "risk/return trade-off" in
finance. It discusses the trade-off using beta and standard deviations, coefficient of
correlation tools and provides a method for quantifying risk.

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Introduction

Risk and return plays a key role in most individual investors decision making
process. Every investor wants to avoid risk and maximize return. In general, risk and return
go hand in hand. If an investor wishes to earn higher returns than the investor must appreciate
that this will only be achieved by accepting a commensurate increase in risk. Risk and return
are positively correlated; an increase in one is accompanied by an increase in the other.
Investment decisions, therefore, involve a tradeoff between risk and return, which is
considered to be central to the investment decision making. In todays environment, it is
prudent for a rationale investor to look into the real interest on an investment as the inflation
is moving out of the gear. While investors like return they abhor risk. This necessitates for
optimization of risk and reward. Share provides investment opportunities depending on
investors risk, return expectations.

Review of Literature

Treynor (1965) developed a methodology for evaluating the fund performance called
reward to volatility measure. In his path breaking study, Sharpe (1966) developed reward to
variability measure and found 11 funds reported superior performance out of 34 funds to that
of DJIA. Jensens (1968) devised a measure based on CAPM and reported that mutual funds
did not appear to achieve abnormal performance when transactions cost were considered.
Fama (1972) developed a methodology for evaluating investment performance of managed
portfolios. He suggested that overall performance could be broken down into several
components.

Gupta (1974) evaluated the performance of select mutual funds categorized in terms
of their broad investment objectives for the period 1962-71.He reported that all fund types
outperformed the market irrespective of choice of market index and performance measure.
Jayadev (1996) evaluated the performance of two growth -oriented mutual funds on the basis
of monthly returns compared to benchmark returns over a study period of 21 months (June
1992 to March 1994). He employed risk- adjusted performance, measures suggested by
Jensen, Treynor and Sharpe for evaluation. He found that both the funds were poor in earning
better returns either adopting market timing strategy or in selecting under priced securities.
Further, the study concluded that the two growths -oriented funds have not performed better
in terms of total risk and were not offering advantages of diversification and professionalism
to the investors.

Sehgal and Jhanwar (2008) evaluated the performance of 60 growth and growth
income mutual fund schemes in India from January 2000 to December 2004.They examined
both the stock selection skills and the timing abilities of the sample fund managers and
argued that multi-factor benchmarks provide better selectivity and timing measures compared
to one-factor CAPM as they control for style characteristics such as size, value and
momentum. It found that the evidence on selectivity improved marginally when higher
frequency data such as daily returns are used instead of monthly returns. Zabiulla (2010)
examined the investment performance of twelve selected sector funds during April 2006 to
July 2009 using high frequency data. The study revealed that performance measured in terms
of downside and relative risk criteria revealed that almost all the schemes posted poor

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performance. The study concluded that time tested models alone cannot give a fair view of
the fund managers competence skills in delivering abnormal returns; downside risk measures
could definitely augment the performance evaluation framework of managed portfolios.

Statement of the Problem

In the current economic scenario, interest rates are falling and fluctuate, it reflects
in the share market has put more investors in the trouble. One finds it difficult to take
decision on investment. This is primarily, because investments are risky in nature and
investors have to consider various factors before investing in investment avenues. Therefore
the study aims to compare stocks of various companies from different sectors like
Information Technology, Automobiles, Banking, Pharmaceuticals, and Oil Sectors in the
form of their risk, return & liquidity.

Objectives of the Study

1. To compare selected Companies BSE sensex stocks in respect with their risk
& return
2. To analyze the performance of Stocks on selected companies with respect to
their Fundamentals.
3. To find the Volatility of Shares using Beta.
4. To find out the relationship between risk and return of selected companies
Stocks.

Data and Their Sources

The study is based on comparing Stocks risk and return of ten Companies (TCS,
Maruti, SBI, Sun Pharma, ONGC & ACC, Bharathi Airtel Ltd, ITC, L&T, and Tata Power)
among SENSEX 30 companies in respect to their risk, return, beta and standard deviation.
However, with the objective and scope of the study in mind, it is decided to study on return
series of selected stocks. Monthly closing prices of the selected scripts are to be collected
from http://www.bseindia.com website. In order to avoid bias, at least three years monthly
data is decided to be necessary. The reference period is from Jan, 2008 to May 2011.

Statistical Tools used for Calculation of Volatility

Beta ()

Beta measures the non diversifiable risk. Beta shows how the price of a security
responds to market forces. In effect, the more responsive the price of security is to changes in
the market, the higher will be its beta. Beta is calculated by relating the returns on security
with the return for the market. It can positive or negative. Stock Beta is a calculation or
measurement of volatility or risk of a stock trading on the stock market. It is the fluctuation in
stock prices and the market in general. Some stocks have greater risk than others, and thus
carry higher Stock Betas.

Beta for each stock calculated using daily opening and closing share price of each
company corresponding daily Bombay Stock Exchange Sensex. First, rate of returns of
companies and Bombay Stock Exchange Sensex are calculated. The calculations as follows:

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 Rate of return = (closing share price opening share price)/ opening share price*100

Computation of Beta:
=NXY-(X) (Y)/ N (X) - (X)

Standard Deviation (S.D)

This is the most commonly used measure of risk in fianc. Its square also is widely
used to find out the risk associated with a security. Standard deviation is a statistical term that
measures the amount of variability or dispersion around an average. Standard deviation is
also a measure of volatility. Generally speaking, dispersion is the difference between the
actual value and the average value. The larger this dispersion or variability is, the higher the
standard deviation. The smaller this dispersion or variability is, the lower the standard
deviation. Chartists can use the Standard Deviation to measure expected risk and determine
the significance of certain price movements.
Standard Deviation= (X-X1)/N

Coefficient of Correlation
Coefficient of Correlation is a statistical technique, which measures the degree or
extent to which two or, more variables fluctuate with reference to one another. Correlation
analysis helps in determining the degree of relationship between two variables but correlation
does not always imply cause and effect relationship.
The Coefficient of Correlation is essentially the covariance taken not as an absolute
value but relative to the standard deviations of the individual securities. It indicates, in effect,
how much x and y vary together as a proportion of their combined individual variations,
measured by SD of x multiplied by SD of y.

R= N / [{(NY)-(Y) } {NX- (X) }]

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Table 1: Stock & Market Return of selected companies from Jan 2008 to May 2011

Month Mar TCS MARU SBI SUNPHAR ONG AC BHARTIAR ITC LN TATA
ket TI MA C C TL T POWE
Jan-08 -
Retu - -15.55 - -6.52 - - -14.41 - - R
-12.98
Feb-08 13.1
rn- 17.8
- 9.19- 20.85 24.3 7.92 12.1
-
2.87 8.01 0.33 1.78 -5.11 1.23 8.95
7
1.36 2
0.87 3.49 8 8
4.78
Mar-08 - - -3.54 - 0.95 -2.64 5.64 -1.54 4.01 - -14.89
Apr-08 9.19 6.74
12.8 23.4
10.2 - 13.5
-
9.61 -10.51 18.21 3.55 8.02 6.06 16.82
3 66 9.14 8
1.53
May-08 - 10.6 1.93 - -4.30 - - -4.11 - - -6.44
Jun-08 6.52
- 7- 19.6- 17.29 13.6
- 2.83
- 1.64
-
-19.21 -3.96 -6.57 -18.73 -22.56
18.8 16.4 4
23.3 4
21.0 13.8 27.4
Jul-08 6.50 - -5.72 26.3 1.45 22.06 10.8 10.69 0.59 18.3 10.58
6 6
3.06 52 7
7- 2 0
6
Aug-08 3.56 - 18.19 0.54 5.33 3.36 6.14 1.67 0.77 -8.61
Sep-08 - 2.00
- 3.00 - -
7.03 6.52 0.54 0.54 9.22 -5.42 -13.71
Oct-08 10.7
- 18.1
- - - - 0.13
- 5.31
-
-19.25 -24.54 -17.53 -25.04
7
24.7 8
19.7 25.0 35.72 19.7 18.2 35.4
Nov-08 - - -7.61 - -5.91 -1.17 - -0.59 8.44 - -4.41
5
10.9 8
0.35 3
5.90 7
18.7 3 6
12.9
Dec-08 5.29 - -2.60 17.6 -0.02 -4.62 13.9 5.94 - 6.08 11.38
4 15.9 5- 5
2 1.41 4
Jan-09 - 5.56 8.76 0.32 -2.49 5.19 -11.93 4.17 - 1.39
3.05 8 10.9 11.3
Feb-09 - - 19.93 - -5.51 4.72 6.12 1.54 2.21 - -3.79
4.80 5.21 9
9.99 1
12.1
Mar-09 10.7 13.6 16.73 5.60 10.79 13.99 9.21 0.13 0.71 12.3 7.03
9 8 5
0
Apr-09 17.0 23.3 5.25 18.3 15.83 11.00 11.6 19.73 2.16 29.3 14.90
May-09 1
25.7 4
16.6 4
43.7 2
16.8 - 5
57.0
23.68 -6.95 34.23 7.85 18.42
Jun-09 0- 3- 8- - 7- 3.39 5
10.4
2.94 -11.30 -12.91 1.84 5.00
Jul-09 1.71 42.6
38.5 7.09 10.33 3.74
15.9 30.5 4-
8.02 32.08 4.38 5.49 9.14 -48.70 13.03
93 6- 7- 4.52
Aug-09 - 0.00 0.82 - -0.42 1.32 3.45 3.23 -0.85
Sep-09 0.18 15.9 4.49
24.7 8.41 7.93
-
9.15 17.33 18.58 -1.96 1.02 -2.44 6.60 0.79
Oct-09 - 8 6 - 0.86 -
1.00 -16.98 0.50 -1.24 -3.59 -32.84 9.51 2.38
Nov-09 7.51 8.70 6.55
6.87 9.95 10.76 2.20 6.97 5.63 7.65 5.16 1.10 3.03 0.44
Dec-09 3.05 7.72 -1.29 0.73 2.80 -2.28 9.40 8.87 - 3.79 2.07
Jan-10 - - - 3.15
- -
-12.28 -4.46 -7.42 0.09 -7.12 -5.45
Feb-10 6.38 2.03 9.14- 0.30
- 16.0
0.55 3.47 5.52 7.59 -0.26 5.84 -8.59 9.95 -6.71
3.38 7.27 7
Mar-10 6.63 2.32 -3.99 4.47 15.46 -2.27 2.53 10.76 12.8 2.61 12.65
Apr-10 - 10.2 - 2 -
0.02 -10.00 -12.64 -4.08 -5.27 0.19 -1.31
May-10 - 2.66
- 1- 5.11
- 1.65
-3.36 5.59 10.95 -11.83 6.83 1.79 -5.22
Jun-10 3.38 1.85 0.99 9.22 10.7
4.47 1.23 14.81 1.86 7.38 10.59 7.04 0.10 7.63 3.04
Jul-10 12.4 - 3
1.07 -15.27 9.34 -1.62 -5.15 16.69 1.23 0.12 0.75
Aug-10 5- 4.43 -
0.33 3.37 9.72 -0.60 7.53 4.85 6.53 0.36 -8.94
Sep-10 11.3 0.25 16.6 19.2 47.5 12.3
9.31 13.67 14.06 4.28 11.39 8.77 10.56
3- 4- 2- 3 5-
Oct-10 13.2 6.87 3.81 -7.96 -11.01 - 2.46
Nov-10 0.31
- 4 3.04- 1.47
- 4.36
- 1.12
-
2.25 -8.62 -79.17 -5.44 9.38 -7.90
Dec-10 3.71 6.05- 1.03 0.75 3.85
5.01 9.13 -0.10 7.27 3.06 8.87 0.82 1.16 1.49 4.81
Jan-11 - - 6.24- - - -
-12.39 -10.45 -9.00 -11.12 -9.40
Feb-11 11.1
- 0.67
- 6.68- - 8.16
- 7.31 17.5
-
-4.98 -5.45 2.51 3.24 -7.63
2
3.27 3.82 0.75 77.32 2.51 3
7.39
Mar-11 8.14 5.67 3.94 4.41 3.12 5.99 10.2 7.81 6.02 7.01 14.10
Apr-11 - - 3 -
5.75 1.21 5.46 6.15 2.71 6.40 5.26 -2.03
May11 1.68
- 1.64
- - - 4.12
-7.01 1.94 -8.87 -1.28 0.03 1.54 -6.97
3.75 0.57 18.2 7.60
7

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Risk & Return relationship Analysis

TCS: The relationship between risk and return of TCS from Jan 2008 to may 2011 is
discussed here. The table shows that market return is negative. The TCS stock whose returns
vary more than the market's returns over time.

Stock Return 52.34

Market Return -3.31
Beta() 0.87
Standard
Deviation(S.D) 11.55
Variance 133.31
Coefficient of
Correlation 0.61

Table 2: Risk & Return relationship of TCS

The above table shows that, the Company is less volatile & less risky as the beta value is
less than 1.i.e. =0.87 The Co-efficient of Correlation of the sector is showing positive
correlation. It means that when market return increases, the return from this sector also
increases. Since the value of S.D is comparatively less, it indicates that this sector is
comparatively less volatile. Hence the company will yield good return.

Chart 1: Stock and Market Return of TCS

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MARUTI:

The stock return of maruti is 41.96% during the period of Jan 2008 to may 2011.The table 3
shows that, the Company is less volatile & less risky as the beta value is less than 1.i.e.
=0.80. The Co-efficient of Correlation of the sector is positive correlation. Since the value
of S.D and variance is comparatively low, it indicates that this stock is comparatively less
volatile.

Stock Return 41.96

Market Return -3.31
Beta() 0.80
Standard Deviation(S.D) 10.87
Variance 118.09
Coefficient of Correlation 0.62
Table 3: Risk & Return relationship of MARUTI

SBI:

The stock return of SBI is 22.27% during the period of Jan 2008 to may 2011.The table 4
shows that, the Company is more volatile than the market & more risky as the beta value is
greater than 1.i.e. =1.19. The Co-efficient of Correlation of the sector is positive correlation.
Since the value of S.D and variance is comparatively high, it indicates that the SBI is more
deviate from is average.

Stock Return 22.27

Market Return -3.31
Beta() 1.19
Standard Deviation(S.D) 11.82
Variance 139.66
Coefficient of Correlation 0.81
Table 4: Risk & Return relationship of SBI

SUN PHARMA:

The stock return of sun Parma is -18.11% during the period of Jan 2008 to may 2011.The
table 5 shows that, the Company is less volatile & less risky as the beta value is less than
1.i.e. =0.66. A Stock's Beta is the middle line between minimizing the risk of undertaking
investment activities and maximizing the returns gained. The Co-efficient of Correlation of
the sector is positive correlation. Since the value of S.D and variance is comparatively high,
it indicates that the stock is more deviate from is average.

Stock Return -18.11

Market Return -3.31

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 Beta() 0.66
Standard Deviation(S.D) 12.65
Variance 160.10
Coefficient of Correlation 0.41
Table 5: Risk & Return relationship of SUN PHARMA

ONCG:

The stock return of Oil & Natural Gas Corporation is -78.86% during the period of Jan 2008
to may 2011.The table 6 shows that, the Company is more volatile than the market & more
risky as the beta value is near to 1.i.e. =0.98. So the stock is moving in proportion with the
market. The Co-efficient of Correlation of the sector is positive correlation. Since the value
of S.D and variance is comparatively high, it indicates that stock is more deviate from is
average

Stock Return -78.86

Market Return -3.31
Beta() 0.98
Standard Deviation(S.D) 13.40
Variance 179.56
Coefficient of Correlation 0.56
Table 6: Risk & Return relationship of ONCG
ACC:
The stock return of ACC is 15.74% during the period of Jan 2008 to may 2011.The table 7
shows that, the Company is less volatile than the market & less risky as the beta value is less
than 1.i.e. =0.82. The Co-efficient of Correlation of the sector is positive correlation. Since
the value of S.D and variance is comparatively high, it indicates that the stock is more deviate
from is average.

Stock Return 15.74

Market Return -3.31
Beta() 0.82
Standard Deviation(S.D) 10
Variance 100.08
Coefficient of Correlation 0.73
Table 7: Risk & Return relationship of ACC

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BHARTI AIRTEL:

The stock return of Bharti Airtel is -82.59% during the period of Jan 2008 to may 2011.The
table 8 shows that, the Company is less volatile than the market & less risky as the beta value
is greater than 1.i.e. =0.62. It gives the moderate return. The Co-efficient of Correlation of
the sector is positive correlation. Since the value of S.D and variance is comparatively high,
it indicates that stock is more deviate from is average.

Stock Return -82.59

Market Return -3.31
Beta() 0.62
Standard Deviation(S.D) 11.27
Variance 127
Coefficient of Correlation 0.46
Table 8: Risk & Return relationship of BHARTI AIRTEL
ITC:

The stock return of ITC is 0.23% during the period of Jan 2008 to may 2011.The table 9
shows that, the Company is less volatile than the market & less risky as the beta value is less
than 1.i.e. =0.33. The Co-efficient of Correlation of the sector is positive correlation. Since
the value of S.D and variance is comparatively high, it indicates that stock is more deviate
from is average.
Stock Return 0.23
Market Return -3.31
Beta() 0.33
Standard Deviation(S.D) 10.07
Variance 101.50
Coefficient of Correlation 0.29
Table 9: Risk & Return relationship of ITC
LNT:

The stock return of LNT is -2.13% during the period of Jan 2008 to may 2011.The table 10
shows that, the Company is more volatile than the market & more risky as the beta value is
greater than 1.i.e. =1.39. The Co-efficient of Correlation of the sector is positive correlation.
Since the value of S.D and variance is comparatively high, it indicates that stock is more
deviate from is average.
Stock Return -2.13
Market Return -3.31
Beta() 1.39
Standard Deviation(S.D) 12.35
Variance 152.64
Coefficient of Correlation 0.88
Table 10: Risk & Return relationship of LNT

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TATA POWER:

The stock return of TATA POWER is -13.28% during the period of Jan 2008 to may
2011.The table 12 shows that, the Company is moving in the same direction with the market
because the beta value is near to 1.i.e. =0.94.. The Co-efficient of Correlation of the sector is
positive correlation. Since the value of S.D and variance is comparatively less, it indicates
that stock is less deviate from is average.

Stock Return -13.28

Market Return -3.31
Beta() 0.94
Standard Deviation(S.D) 9.80
Variance 96.10
Coefficient of Correlation 0.86
Table 11: Risk & Return relationship of TATA POWER

SUMMARY OF THE COMPANYS STATISTICAL VALUES:

Stock Beta() Standard Coefficient of

Company Name Return Deviation Correlation
(S.D)
Tata Consultancy Services
52.34 0.87 11.55 0.61
Ltd.

Maruti Suzuki India Ltd. 41.96 0.80 10.87 0.62

State Bank of India 22.27 1.19 11.82 0.81

Sun Pharmaceutical
-18.11 0.66 12.65 0.41
Industries Ltd.
Oil & Natural Gas
-78.86 0.98 13.40 0.56
Corporation Ltd.

ACC Ltd 15.86 0.82 10.00 0.73

Bharti Airtel Ltd. -82.59 0.62 11.27 0.46

ITC Ltd. 0.23 0.33 10.07 0.29

Larsen & Toubro Ltd. -2.13 1.39 12.35 0.88

Tata Power Co. Ltd. -13.28 0.94 9.80 0.86

Table 12: companys statistical values

The table 12 shows the stock return, beta, standard deviation and coefficient of
correlation of ten companies. During the period Jan 2008 to May 2011 the market returns

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percentage in negative even though The TCS, Maruti Suzuki, SBI, ACC are proving return
percentage in positive. All the companies coefficient of correlation is positive in value it
implies that the market value is increase the stock value also increase.

Beta comparison:
Stock Beta is a calculation or measurement of volatility or risk of a stock trading on
the stock market. It is the fluctuation in stock prices and the market in general. Some stocks
have greater risk than others, and thus carry higher Stock Betas.

Chart 2: Beta values of the companies from Jan 2008 May 2011

A Beta of 1 show the stock is moving in proportion with the market. A Beta Greater
than 1 shows the stock is more volatile than the market. A Beta Less than 1 shows the stock is
less volatile than the market. The companies like LNT and SBI has high beta value compare
to all other stocks which are high risky and provide high return. A Stock's Beta is the middle
line between minimizing the risk of undertaking investment activities and maximizing the
returns gained. For example, LNT Beta is 1.39. This means the stock is 1.39 times as volatile
as the market.
The market provides a -3.31% return from Jan 2008 May 2011 to ordinary
investors, the ITC stock with a Beta of 0.33 will provide a 0.23 return (lower risk, lower
return!). However, if the market provides a negative return, then the Stock with a Beta of 0.33
will provide a positive return.

Coefficient of correlation comparison:

A coefficient of correlation is a mathematical measure of how much one number

(such as a share price) can expect to be influenced by changes in another (such as an index).
It is closely related to covariance. A correlation coefficient of 1 means that the two numbers
are perfectly correlated: if one grows so does the other, and the change in one is a multiple of
the change in the other.

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 Chart 3: Beta values of the companies from Jan 2008 May 2011

In this study all ten companys stock has the positive value as well as those values is
less than 1. A non-zero correlation coefficient means that the numbers are related, but unless
the coefficient is either 1 or -1 there are other influences and the relationship between the two
numbers is not fixed. So if you know one number you can estimate the other, but not with
certainty. The closer the correlation coefficient is to zero the greater the uncertainty, and low
correlation coefficients means that the relationship is not certain enough to be useful. The
LNT and TATA POWER have the high correlation value which indicates that the stocks
movement is correlated with market.

Findings:
The computed values of beta show that Pharmaceutical, Housing related and
Automobile sectors are the most defensive (least risky) sectors whereas banking,
power, construction and oil and gas sectors are the most aggressive (most risky)
sectors.

That is banking, construction and oil and gas have the maximum market risk of
running a business whereas Pharmaceutical, Housing related and automobile sectors
has the least risk. The results show that the risk of construction and Banking sectors
are the largest, it means that they are the most aggressive sectors

The table 12 shows that the SBI, ONCG, LNT, and TATA POWER have the beta,
S.D, Variance and correlation is high. These companies have high risk and high return
in the market.

The ACC, TCS, MARUTI SUZUKI have the beta, S.D, Variance and correlation is
moderate. These companies have moderate risk and average return in the market.

The companies like SUN PHARMA, BHARTI AIRTEL, and ITC have the beta, S.D,
Variance and correlation is less. These companies have less risk and less return in the
market.

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 Due to the highest value among the selected 10 companies, the systematic risk of
L&T was the highest during the study period. Hence it indicates that the returns from
L&T are higher than the market. Also L&T has got the highest value of standard
deviation and variance. This indicates that L&T is highly volatile.

ITC is having the least value. This indicates that ITC has the lowest systematic
risk among the stocks during the study period. Also ITC has got the least value of
standard deviation and variance. This indicates that ITC is less volatile.

Suggestion:

If an investor has a desire for bearing high risk, then he can go for the companies with
higher beta values. He can invest on the shares of SBI, ONGC, LNT, and Tata Power
where the values of beta are highest.

If an investor does not have an enthusiasm for bearing risk, then he can go for
companies with beta values less than one. For new investors who wish to invest in the
capital market, it is better to invest for long term as the sexsex is experiencing the
huge fluctuations. Also the market is highly volatile.

The investor who desire to bear risk and wants to yield high return, they invest in
LNT and SBI as the beta, S.D, Variance and correlation is high. Hence this will yield
high return.

The stock market is characterized by the trade-off between risk and return. The higher
the risk the investor is willing and able to take, the higher the potential rewards from
the investment. Therefore, if a particular investment offers you high returns, it is an
indication that it will come with a high risk burden.

As part of the selection process, investor should determine the risk level of the stock
as well as their risk tolerance. If they are looking for high returns they should be able
to meet high potential losses as well.

There is no safe investment that will provide investors with high returns over a short
period of time. Therefore, investor should direct their resources toward long-term
investments that are more likely to reward you for the patience with high returns.

Conclusion:

As a whole the stock market is sometime highly volatile. Cyclical sectors like Banking
and Power sectors are having high risk. The non cyclical sectors like Pharmaceutical,
Housing related, FMCG having low risk. The cyclical sectors are those sectors which
generally move with the performance of the entire economy and the products of which are
highly price elastic and income.
Investors can find the best use of the beta ratio in short-term decision-making, where
price volatility is important. If you are planning to buy and sell within a short period, beta is a
good measure of risk. However, as a single predictor of risk for a long-term investor, the beta
has too many flaws. Careful consideration of a companys fundamentals will give you a

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much better picture of the potential long-term risk. The stocks may not be a safe but for a risk
adverse investor and for a risk taker the reward may he heavy in the short run, than in the
long run.

References
o Attilio Meucci Exercises in Advanced Risk and Portfolio Management, August 15
2010 Last version available at http://ssrn.com/abstract=1447443.

o Doron AvramovStock Return Predictability and Model Uncertainty April 17, 2001
available at ssrn.com

o Ackermann, Carl, Richard McEnally, and David Ravenscraft, 1999, The performance
of hedge funds: Risk, returns, and incentives, The Journal of Finance 54, 833-874.

o Fama, Eugene and Ken French, 1993, Common risk factors in the returns on stocks
and bonds, Journal of Financial Economics.

Website:

http://www.lariba.com/knowledgecenter/articles/pdf/Risk%20and%20Return%20of%
20Islamic%20Stock%20Indexes.pdf

http://www.citefin.com/375-beta-calculation.html

http://www.investopedia.com/articles/04/012104.asp

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