Given the current credit crunch and recessionary forces in the environment, the debt yields are also low and the holding return from stocks is also low. However, this is also an attractive time for undertaking investments since stocks are available at very low PE ratios and once the economy rebounds, these stocks are expected to re-gain momentum and clock good returns on account of capital appreciation. Since the investment time horizon is long term and no additional constraints (liquidity, tax concerns) have been stated, stocks seem to be a good investment class.
The selection of the individual stocks has been made on the basis of relative valuation model as well as their aggregate risk in the context of the portfolio. Instead of focusing on a single sector, stocks of 4 companies from the different sectors of financials, telecommunication, retail and transportation were selected. This was because while retail is primarily a defensive sector (which would help to fulfill the objective of capital preservation), financials is mainly an aggressive sector (which would help to achieve the growth objectives of the investment mandate). Telecom and transportation sectors can be classified as middle-beta sectors compared to aggressive sectors (with beta greater than 1) and defensive sectors (with beta less than 1).
The significance of beta stems from the fact that beta measures the systematic risk of the portfolio and it is for bearing this risk only that investors are compensated. As per the Capital Asset Pricing Model, the expected return on any asset/security is given by:
Expected Return = Risk free return + Beta * Market Risk Premium.
The risk of any security can be divided into 2 parts – systematic (related to overall economy, non-diversifiable) and unsystematic risk (related to the particular company). As per the models of portfolio management, diversification across various asset classes leads to the elimination of the unsystematic risk of the individual components and the total risk of the portfolio is its systematic risk (represented by beta). Since investors are compensated for bearing systematic risk only, it is suggested to diversify across a large number of stocks so that the diversifiable component of the risk can be done away with, as shown in the diagram:
在给定的环境目前的信贷紧缩和经济衰退的力量，债务收益率也低，持有收益率从股票也低。然而，这也是创业投资从股票可在非常低的市盈率，一旦经济复苏的一个有吸引力的时候，这些股票将重新获得动力和时钟对资本增值帐户好的回报。由于投资的时间跨度是长期的，没有额外的约束（流动性，税收问题）已表示，股票似乎是一个很好的投资类。
的个股的选择已经在相对估值模型的基础上，以及他们在投资组合中的总风险。而不是集中在一个单一的部门，从财务，不同行业的4家公司的股票，电信，零售和运输选择。这是因为当零售是一个防守型行业（这将有助于实现资本保全的目的），主要是一个积极的金融部门（这将有助于实现投资任务的增长目标）。电信和运输行业可分为中β行业相比，积极的部门（β大于1）和防御部门（β小于1）
β的意义在于，测试了投资组合的系统风险，这种风险是轴承只有投资者补偿。根据资本资产定价模型，任何资产的预期收益/安全了
预期收益率=无风险收益率+β×市场风险溢价。
任何安全风险可以分为2个部分–系统（整体经济，相关的非分散）和非系统性风险（对特定公司相关的）。根据投资组合管理模型，在各种资产类别的多元化导致的各个组成部分的非系统性风险的消除和投资组合的总风险的系统性风险（以β）。由于投资者对轴承系统的风险补偿，建议分散各地的大量股票，风险的分散组件可以做掉的，如图所示
