Investment and portfolio analysis Essay Example | Topics and Well Written Essays - 1500 words

Investment and portfolio analysis - Essay ExampleOn the contrary, Sharpe symmetry refers to a measure of risk fitting measure that employs example deviation when computing portfolio returns and inherent risk associated with a particular portfolio (Ctaff, 2012). Empirical research asserts that if Sharpe proportionality is higher it implies returns are better. Therefore, by utilizing criterion deviation, Sharp ratio assumes that the relevant risk is total risk unlike Treynor ratio which assumes that the relevant risk is systematic (Ctaff, 2012). Both Treyon and Sharpe ratios are similar however, the twain measures differ in terms of how they determine of risk volatility. Whereby, Treyon ration utilizes beta while Sharp ratio tend to utilize standard deviation (Anric, 2013). cultivation ratio measures the ability of corporate managers to utilize skills/ luck to generate excess returns beyond the established benchmark. This ratio utilizes alpha elements as well as standard devia tion to measure volatilities associated with a particular portfolio (Reilly and Brown, 2012). Therefore, information ratio assumes that the relevant risk is total where both systematic and unsystematic risks are combined (Harkins, 2012). Jensen alpha refers to a measure of portfolio returns predicted using capital asset pricing model. In addition, Jensens alpha assumes that relevant risk is systematic (Bacon, 2013). On the other hand, Sortino ratio refers to a ratio that helps to determine the difference between good and bad risk in sharp ratio. This ratio tends to be similar with Sharp ratio. However, it utilizes descending(prenominal) deviation making it slight different from sharp ratio. This ratio measures return that poop be derived during volatility whereby, standard deviation may be utilized. Therefore, Sortino ratio assumes that relevant risk it total (Feibel and Vincent, 2011). 2. Discuss whether the present value of cash flow approach and the relative valuation approach to security valuation can be considered to be competitive or complementary. The present value approach may utilize discount rate to discount cash flows generated by a particular project to determine their value. Additionally, the present value approach may be utilized in making valuations of different assets such as shares, real number estate properties and even bonds (Feibel & Vincent, 2011). Whereby, a negative net present value indicates that a project may not be profitable. In addition, a exacting net present value implies that a project may be profitable and therefore, such project should not be undertaken because it will expose the friendship at a greater risk. On the other hand, relative valuation approach focuses at valuing company stocks with those of company own historical method of valuation. In addition, relative valuation tends to compare companys stocks with the market value of other similar assets to determine whether they can be suitable for investments (Feibel an d Vincent, 2011). This means that similar stocks of a particular company should be compared with those stocks of companies operating in the same market. However, relative valuation approaches have some limitations. For example, all companies may not utilize the same corporate strategies and hence, great discrepancies may exist between companies (Feibel and Vince