Question 1 Read the case and answer all parts of the question. Optimizing Portfolio Construction: EliteVision Ventures plc's Investment Analysis Journey Introduction and Background EliteVision Ventures plc, a reputable multinational corporation, has long been recognised as a leading player in the technology sector. However, the company's visionary leadership aims to elevate its investment strategy by diversifying its portfolio across various industries. The finance team faces the challenge of selecting the most suitable short-term portfolio from two options, each comprising four financial investments across diverse sectors. This case study delves into A plc's investment analysis journey, exploring the risk assessment process, portfolio construction, and the implications of their decision-making. EliteVision, Ventures plc's remarkable success in the technology sector has solidified its position as an industry leader. However, as technological advancements have become ubiquitous, A plc's visionary leadership realises the need to explore new growth opportunities. The company seeks to diversify its portfolio and expand into other industries, such as healthcare, energy, and finance. With this strategic objective in mind, A plc's finance team undertakes the challenging task of identifying two short-term portfolios, each consisting of four financial investments from diverse sectors. Data Collection and Analysis The finance team sets out on an intensive data collection process, mining historical data on the performance of the four financial investments in each portfolio. Analxsing, returns and correlations, they seek to understand the behaxiour of individual assets during different market conditions. Armed with this data, they aim to calculate the expected return and risk of each portfolio. As they dive into the wealth of information, the finance team immerses themselves in the financial intricacies of various industries. They explore how the healthcare sector thrives on advancements in medical technology, how the energy sector is embracing sustainability measures, and how the finance industry navigates the dynamics of global economies. Portfolio Construction With data in hand, the finance team endeaxours, to construct the optimal portfolio. The first portfolio is predominantly technology-focused, exhibiting strong historical returns that resonate with EliteVision Ventures plc's established expertise. The allure of the familiar and successful technology sector is compelling, but the finance team is aware of the need for diversification. The second portfolio presents a balanced mix of investments from the healthcare, energy, and finance sectors. This option offers opportunities to diversify risk and explore new growth prospects. The team recognises the potential benefits of expanding their investment horizons and embracing new industries, but they also acknowledge the element of uncertainty that comes with venturing beyond their comfort zone. Risk Assessment and Diversification Benefits The finance team realises the paramount importance of risk assessment and diversification benefits in portfolio construction. Using their expertise, they carefully.calculate the expected return and standard deviation for each portfolio, understanding that diversification could potentially lower overall portfolio risk. The correlation analysis reveals the interplay of asset movements, providing crucial insights into diversification benefits. With the technology-focused portfolio offering higher historical returns but less diversification and the diversified portfolio presenting new growth opportunities but potential risk, the team grapples with the trade-offs between risk and return. Investment Decision-making As the finance team presents their findings to EliteXision Ventures plc's management, lively discussions ensue. The leadership recegnises, the allure of the technology-focused portfolio, given the company's successful track record in this sector. The possibilities of enhancing the company's position in the technology market are tempting, but they are equally aware of the importance of diversification. In the boardroom, debates echo on the potential benefits of expanding into healthcare and tapping into the rising demand for medical technologies. The energy sector sparks discussions on environmental sustainability and the potential for significant returns from renewable energy. Meanwhile, the finance industry's resilience and its potential to cushion against market volatility raise interest. In their decision-making process, EliteVision Ventures plc's management examines the implications of investing in each portfolio. They consider the company's risk appetite, longterm financial goals, and commitment to responsible investing. The technology-focused portfolio aligns with EliteVision Ventures plc's expertise but leaves the company exposed to potential risks in a single sector. On the other hand, a diversified portfolio provides opportunities for growth and risk mitigation but poses the challenge of venturing into new and less familiar territories. EliteVision Ventures plc's management is well aware of the implications of their investment decision, not just on the company's financial performance but also on its brand reputation and long-term sustainability. The company prides itself on its responsible business practises and aims to align its investment strategy with its commitment to sustainable development. The journey of EliteVision Ventures plc's investment analysis underscores the importance of data-driven decision-making and the significance of diversification in mitigating risk. As the company forges ahead into new industries, it exemplifies the spirit of growth and innovation, backed by a robust investment strategy that remains true to its core values. Issue Of the four financial investments in various sectors, EliteVision. Ventures plc is considering making an investment in one of the two short-term portfolios (Portfolio 1 and Portfolio 2). The management of EliteVision, Ventures plc is unsure of how to determine the risk of these portfolios, despite suggestions that either the capital asset pricing model or portfolio theory would get the same result. The market return is estimated to be 12.5%, the risk free rate is 5.5%. Required (a) Discuss and justify whether portfolio theory and capital asset pricing model give the same portfolio risk measure. (b) Compute the expected return and the risk of the two portfolios using the data provided and recommend your choice. (c) Suggest to the managers of EliteVision Ventures plc the significance of international diversification and provide a comprehensive strategy to implement it in EliteVision, Ventures plc's investment portfolio. Discuss the potential benefits, challenges, and risk management considerations that arise from international diversification in the context of Elitelision Ventures plc's expansion into diverse industries