Portfolio analysis and risk assessment

Abstract

The objective of this project is to explore and get a hands-on experience in practicing different methodologies for portfolio analysis and optimization and risk assessment measures. For these methodologies, we use stock price and financial statements data from the Indian Banking sector. We have considered 10 major Indian banks for the project, which we believe may sufficiently represent the general banking industry trends in India. The data used for the project has been collected from Bloomberg. We have stock price and financial statements of the individual banks and create a portfolio that might represent the banking industry in India. We start by analyzing the individual stock and portfolio volatilities, observe common trends among the different banks taken into consideration, and try to identify historical financial events (global and specific to India) that may have created such patterns and periods of high volatility. The portfolio created to represent the industry has weights assigned to individual bank stocks according to their relative net assets. We also do an exercise to obtain a portfolio that would make an optimal investment with the 10 bank stocks. Risk assessment for the individual stocks and banking portfolio has been done by obtaining the 10- day 99% VaR for these equities. This VaR is the standard measure laid out for risk assessment in Basel II and Basel III and provides a dependable estimate for the capital that needs to be kept as a buffer to absorb losses that may occur during stress conditions and adverse events