Walmart as Food Processing Industry for IT - myassignmenthelp.com

Question: Discuss about theWalmart as Food Processing Industry for IT. Answer: Depicting the Criteria used for Constructing the Portfolio: ANZ BHP RIO WBC WES CSL WPL HVN JBH COH Return 0.05% 0.01% 0.06% 0.05% 0.06% 0.07% 0.00% 0.05% 0.08% 0.06% Variance 0.0002 0.0003 0.0004 0.0002 0.0002 0.0002 0.0003 0.0004 0.0004 0.0003 Beta 1.1886 1.3763 1.4534 1.2171 0.7970 0.5339 0.9908 1.0721 0.7783 0.6856 Table 1: Depicting return, variance and beta of ten stocks (Source: As created by the author) P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 Return 0.05% 0.03% 0.04% 0.04% 0.04% 0.05% 0.04% 0.04% 0.05% 0.05% Variance 0.0002 0.0002 0.0002 0.0002 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 Beta 1.1886 1.2825 1.3395 1.3089 1.2065 1.0944 1.0796 1.0787 1.0453 1.0093 Table 2: Depicting return, variance and beta of ten portfolios (Source: As created by the author) Portfolio construction is one of the essential parts of investing, which helps in generating higher income from reduced risk.Without adequate evaluation and research, portfolio construction might increase risk and reduce the overall return (Alexeev, Dungey and Yao 2016). The major criteria that needs to be followed while constructing the portfolio is mainly depicted as follows. Beta of Stock: The calculation of Beta is many essential to identify the overall volatility and risk associated with investment in a particular stock. The derivation of beta mainly helps in identifying significance of returns, which will be provided from investment. The beta could increase overall risk and raise the chance of loss, which might reduce investment capital. From the evaluation of table 1, companies like WES, CSL, WPL, JBH and COH could be included in the portfolio to increase the overall return and reduce any kind of risk from investment. This measure mainly helps in allowing stocks, which could contribute less risk and deliver higher return from investment. The overall portfolios constructed in table 2 mainly depict their beta, which could be evaluated to identifying viability of its returns. Bodie (2013) mentioned that without using beta portfolio managers are not able to select identify adequate stocks that would reduce risk during volatile capital market. Historical Return of the Stock: The second significant criteria that need to be evaluated before comprising or computing the portfolio is derivation of the historical data provided from a stock. The derivation of Historical reforms many helps in identifying the average benefit that is provided by a stock. The derivation of average velocity helps in identifying the minimum return that might be provided from an investment in stock. Moreover, portfolios only keep the stocks, which have higher returns from investment and discards stocks with low returns. The overall portfolio selection conducted in table 2 is derived from the return that is obtained by each stock in table 1. This mainly helps in identifying the stock that could contribute the highest return to the portfolio. Cressy, Malipiero and Munari (2014) argued that stocks with high returns also have high risk, which in turnraises the chance of loss that might incur by an investor. Correlation with other Stocks in the Portfolio: The third measure that needs to be evaluated before accommodating a stock in the portfolio is correlation coefficient. The identification of correlation between be selected stock and the other stock in the portfolio is essential, as it helps in reducing any risk that might incur from investment. The portfolio creation also needs to be conducted based on correlation, and needs to include negative correlated stocks, which could reduce the negative impact from volatile capital market.No relation between stocks returns could be identified, which might reduce return from investment and hamper investment capital. Moreover, the correlation between stocks are not conducted effectively any portfolio which is why it does not provide adequate returns from investment.Guidi and Ugur (2014) argued that without the correlation factor, investors mainly increase their overall risk from investment, which could in turn hamper investment capital. Stocks Weights in a Portfolio: The last criteria that need to be evaluated by investors before comprising a Portfolio is the weights of each stocks, which will be include in the portfolio. After the effective valuation of beta and historical returns, investors mainly need to identify the ideal weight, which will be used during investments. Portfolio used in table 2 is divided on equal basis, which mainly increases the chance of wrong portfolio construction. Therefore, it is essential for investors to create adequate investment weights, which could help in generating higher return from investment and reduce the total risk of the portfolio (Meucci, Deguest and Santangelo 2013). Depicting the Limitations of the Portfolio Construction to Achieve Portfolio Objective: There are certain limitation of the portfolio, which is been created in table 2. The portfolio is mainly created based on selection and not on minimum portfolio variance. In addition, the weights of stocks are equal, which does not help in maximising the returns and reducing risk from investment. The portfolio constructed in the above table mainly portrays a higher risk and low return from investment, which could hamper investment capital. In addition, the portfolio is also not created on equal weights, which increases the risk contribution of the stocks. Moreover, portfolio does not have any kind of this diversification method, which the limitation and reduces any kind risk that might be provided from investment (Najeeb, Bacha and Masih 2015). The risk from portfolio could only be reduced by effective using minimum portfolio variance method, which helps in identifying the returns that provide the least risk from investment. Depicting Recommendations from Findings: From the overall evaluation of the calculation, use of adequate minimum variance portfolio is adequate as it helps in reducing the risk from investment and increasing a chance of continued return.Therefore, adequate weight must be used in creating the portfolio, as it might help in reducing the overall risk from volatile capital market (Taylor 2016). Thus, creation of portfolio consisting of more than one stock is adequate, which could help in increasing the return on investment and diversify the risk from portfolio. 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