You are working as portfolio manager in Asset Management Company. Where you are required to build a diversified portfolio which reduces the risk factor of your fund.

Following are the steps will be taken to build diversified portfolio:-

1. Extract the share prices of different companies (minimum 25 companies) belonging to different sectors for the last 3-years.
2. Convert prices into the returns form as we discussed in the class.
3. Calculate the Mean, Standard Deviation of calculated returns.
4. Calculate the beta and expected return through CAPM (Capital Assets Pricing Model).
5. Calculate the Covariance and the Correlation between the all the companies.
6. Select more reasonable 5 - companies which help to optimize the portfolio risk and return trade-off.
7. Optimize the weights (investments) in each of the company which reduce the riskiness of the portfolio.