Question
Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed in the Bursa Malaysia and its annual average
Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed in the Bursa Malaysia and its annual average rates of return for the last five years relative to the market index are available for analysis in the Table 1. Meanwhile, the details of his current portfolio position is available in Table 2.
Table 1: Annual average rates of return
| Rates of return (%) | |
Year | Brescia Berhad | KLCI Index |
2015 | 20 | 15 |
2016 | 5 | 10 |
2017 | 10 | 18 |
2018 | -15 | 6 |
2019 | -10 | -12 |
Table 2: Current portfolio position
| Value (RM) | Expected return | St. Deviation | Beta |
Bond of Cagliari Bhd | 20,000 | 6% | 15% | 0.85 |
Stocks of Lecce Holdings | 20,000 | 5% | 10% | 2.5 |
Correlation coefficient between Cagliari and Lecce is 0.45 Expected correlation coefficient between Brescia and Lecce is -0.55 Expected correlation coefficient between Brescia and Cagliari is 0.20 |
- Based on the followings portfolio performance evaluation technique, and by assuming that risk free return is 3%, comment if it would be better to include Brescia into the portfolio:
- Treynors measurement
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