7-1 Final Project: Portfolio Performances and Rationale
Southern New Hampshire University
FIN 340
Cierra Bogan
February 20, 2022
Portfolio performances and rationale
Portfolios' Ratios
Since assets are selected on a beta basis, my recommendations should be consistent with
risk objectives. A security that is riskier than the environment has a beta value greater than 1 and
therefore has a higher return. However, securities with lower yields usually have a beta of less
than 1. Therefore, from analyzing the two client's portfolios, we can see that Ezra's portfolio has
higher risk and expected return, and Jacob's and Rachel's portfolio has less risk, resulting in low
return expectations.
Ezra's portfolio
Symbol
Return
Standard Deviation
NFLX
18%
45%
IWM
14% 9% -1% 2%
18% 15% 19% 16%
EFA EEM ORCL
Average return=8%
Portfolio standard deviation=22.6%
Jacob and Rachel's portfolio
Symbol
Returns
Standard Deviation
IBM SPY
8% 9% 6% 7%
20% 11%
MMM
14% 6%
LQD
HYG
8%
8%
Average return=8%
Portfolio standard deviation=11.80%
From these portfolio calculations we can see that both portfolios have similar average
returns; however, the they have different standard deviation. Ezra's portfolio's standard
deviation is greater than Jacob's and Rachel's , this shows that Ezra's investments is risker and
has high returns.
Sharp Ratio
Developed by William F. Sharpe, Sharpe Ratio is a calculation used by investors to
understand the return on investment and compare it with their risk (Hertina et al., 2021). This
ratio is the average return earned above the risk-free rate per unit of total risk. The following is
Sharp's quota for the two customers. High Sharp ratio indicates high better fund returns I
relations to the ressil.
Sharpe ratio calculation
Effective Return Sharpe Ratio= Standard Deviation
Ezra's portfolio=8/22.6=0.354
Jacob and Rachel's portfolio=8/11.80=0.678
The calculations shows that Jacob and Rachel's have high Sharpe ratio which shows that
it has better funds return as compared to Ezra's portfolio.
Treynor's ratio
The Treynor ratio, or reward-to-volatility ratio, is an efficiency indicator used to
determine the excess return generated by each unit of risk carried in a portfolio. The excess
returns quoted here are returns that exceed the returns that can be achieved on a risk-fr