TAILIEUCHUNG - The assessment of share investments portfolio theory and the return on risk-adjusted capital
In this article the main features of portfolio theory will be outlined and illustrated by a simple numerical example. For purposes of clarity a few assumptions will be adopted. This is fol-lowed by the deduction of simple share investment strategies. | RESEARCHES & DISCUSSIONS In this article the main features of portfolio theory will be outlined and illustrated by a simple numerical example. For purposes of clarity a few assumptions will be adopted. This is fol-lowed by the deduction of simple share investment strategies. Then it will be shown that, with the help of Return on Risk adjusted Capital (RoRaC), an improved evaluation of equity portfolios and investment strategies are more possible then with the Sharpe Ratio. This will be illustrated by an example. Finally, by means of the RoRaC, general recommendations for the handling of investments in Vietnam will be derived. In doing so, the insights derived from the portfolio theory for shares can also be applied to real investments in Vietnam. Keywords: Beta Factor, Component Value at Risk, Correlation Coefficient, Expected Return, Inefficient, Investment Strategies, Portfolio Theory, Return on Risk-adjusted Capital, Risk-averse, Risk-taking, Sharpe Ratio, Transformation Curves, Value at Risk, Vietnam Portfolio, Volatility 1. Basics of the portfolio theory For a demonstration of the portfolio theory we shall assume an investment of only two Ger-man shares, those of the automobile manufacturer BMW and of MAN, the commercial vehicle manufacturer. The insights from the portfolio theory for these two shares can be assigned to any number of different shares. But, due to the necessary matrices, the calculation effort will be increased considerably and the deductions will no longer be quite so clear and easy to comprehend. This would not be helpful for the aims of this article [for details on the following remarks see Elton et al., 2002]. Historical share prices constitute the basic principles of the portfolio theory. First, the corresponding share return is calculated from the historical share price rt: Thus the return is rt and the price is kt for the point in time t. From the historical share returns the average share return r can now be calculated: * Berlin .
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