CHAPTER-Ⅰ

INTRODUCTION OF PORTFOLIO DIVERSIFICATION

1.1 INTRODUCTION
In the dynamic and ever-changing world of financial markets, investors continuously
seek solutions that balance risk and return. Portfolio diversification is one of the most
important elements in investment strategy, as it helps to reduce exposure to market volatility
while increasing returns. Investors can reduce the risks associated with individual asset
performance changes by diversifying their investments over a wide range of asset classes.
Portfolio diversity is not a new notion; it has been included into investing theory for decades
and is still a critical component of current financial decision-making.

Portfolio diversity has its roots in early financial market ideas, but its importance was
solidified with the development of Modern Portfolio Theory (MPT) in the 1950s. Harry
Markowitz, a renowned economist, formalized this theory in his key work, Portfolio
Selection (1952). His research shed light on how an investor might use strategic
diversification to create an optimal portfolio that maximizes expected returns while
minimizing risk. This important discovery laid the groundwork for modern investing
methods, and it earned Markowitz the Nobel Prize in Economic Sciences in 1990. Prior to his
findings, diversification was primarily achieved by intuitive decision-making rather than
systematic frameworks. Investors understood the risks of concentrating money in a single
asset or industry, but they lacked a systematic mechanism for optimal diversification. The
introduction of quantitative financial models in the later part of the twentieth century
provided investors with sophisticated tools for evaluating risk, correlation, and expected
returns, hence improving diversification strategies. Portfolio diversification is guided by
numerous fundamental principles, the most important of which are asset allocation,
correlation, and risk mitigation. Asset allocation is the process of allocating investments
among different asset classes, such as stocks, bonds, real estate, and commodities, in order to
achieve a balance of risk and reward. The choice of asset classes is critical, as each has
unique risk-return characteristics and responds differently to macroeconomic situations.
Another important element is correlation, which measures the degree to which two assets
move in respect to one another. Diversification is most successful when assets have low to
negative correlations. For example, during an economic downturn, equities may fall in value,

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while government bonds or precious metals may increase, offsetting losses. By combining
assets with different correlations, investors can build a more resilient portfolio.
Diversification is primarily intended to reduce risk. While diversity cannot completely
eliminate risk, it does greatly reduce unsystematic risk, also known as unique or idiosyncratic
risk, which affects individual securities or sectors. However, systematic risk, which includes
market volatility, is unavoidable and cannot be diversified away. To reach their financial
goals, investors must carefully analyze their risk tolerance and build portfolios that balance
high-risk and low-risk investments.
Modern Portfolio Theory (MPT) remains the dominant paradigm in portfolio management,
emphasizing diversity as a means of improving risk-adjusted returns. MPT believes that
investors should consider how specific assets interact within a portfolio in addition to their
performance. The Efficient Frontier, a key concept in MPT, defines the best set of portfolios
with the maximum expected return for a given risk level. By intelligently mixing assets,
investors can maximize diversity and improve overall portfolio efficiency. In addition to
MPT, behavioral finance has made substantial contributions to diversification theory by
investigating the effect of cognitive biases on investing decisions. Many investors tend to
overconcentrate their portfolios in familiar assets, such as domestic equities or employer-
sponsored plans, which reduces the potential benefits of diversification. Recognizing and
minimizing these biases enables investors to pursue more sensible and diverse investment
strategies.

As financial markets become more sophisticated, diversification techniques have developed

to include new asset classes and investment tools. Traditional diversification, which
previously focused on stocks and bonds, has grown to include hedge funds, private equity,
cryptocurrencies, and commodities. This trend emphasizes the dynamic character of global
markets and the need for investors to constantly change their tactics. Technological
improvements have also had a significant impact on improving diversification strategies.
Algorithmic trading, artificial intelligence, and big data analytics provide investors with
cutting-edge risk management and asset allocation tools. These advancements make it easier
to execute more accurate diversification plans, giving investors more confidence as they
navigate unpredictable market circumstances.

Despite the generally recognized benefits of diversity, it is not without problems. Over-
diversification, for example, can reduce prospective profits while increasing transaction costs.
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When investors spread their capital across an excessive number of assets, the benefits of
diversity are diminished, and the portfolio may underperform. Striking the right balance
between diversification and concentration is critical for achieving higher investment returns.
Furthermore, market correlations are not constant; they can change over time, especially
during financial crises, when previously uncorrelated assets may suddenly exhibit
synchronized movements. This process, known as correlation breakdown, highlights the
importance of regular portfolio review and rebalancing. To maintain good diversification,
investors must remain vigilant and adaptable, reassessing their portfolios on a regular basis.

Diversification is critical not just for molding individual investment portfolios, but also for
impacting the broader financial landscape, thereby contributing to economic stability and
market efficiency. Diversification decreases the influence of market volatility on any single
investment by spreading it across a range of asset classes, industries, and geographic
locations. This, in turn, promotes better liquidity, because a well-diversified market
encourages active trading and reduces risk concentration in specific industries. Enhanced
liquidity allows assets to be bought and sold more quickly, resulting in more accurate price
discovery and market efficiency.

Institutional investors, such as pension funds, mutual funds, hedge funds, and insurance
firms, rely significantly on diversification methods to protect their large asset portfolios and
provide consistent returns to their stakeholders. By diversifying their investments across asset
classes such as equities, bonds, real estate, and commodities, these institutions may better
manage risk and protect their portfolios from market shocks. Diversification also enables
them to meet their fiduciary responsibilities by ensuring long-term financial stability for
beneficiaries, retirees, and policy holders.

Governments and financial regulatory agencies acknowledge the importance of

diversification in promoting economic resilience. Policymakers create restrictions and
incentives to support diverse investment patterns, ensuring that financial institutions and
retail investors do not overinvest in high-risk areas. By encouraging risk dispersion, these
policies help to limit the far-reaching impacts of financial crises, lowering the possibility of
systemic breakdowns that can ripple throughout global markets.

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Diversification also promotes industry innovation and stability, which helps to long-term
economic prosperity. When capital is distributed among a variety of enterprises and sectors, it
promotes competition and the growth of emergent industries. This diverse resource
distribution ensures that economies are not unduly reliant on a single industry, hence
lowering vulnerability to sector-specific downturns. As a result, countries with well-
diversified financial systems are better able to weather economic downturns, adapt to shifting
global trends, and maintain consistent growth over time.

Finally, diversity has far-reaching implications for financial stability, resilience, and long-
term economic growth. By promoting effective diversification methods at both the
institutional and regulatory levels, economies can improve their ability to navigate
uncertainty and build a more resilient and dynamic financial ecosystem.

Diversification is especially important in the world of international investing. Geographic

diversification allows investors to spread risk across many economies, minimizing their
reliance on any one market. Emerging markets, for example, provide significant growth
opportunities but are also associated with increased risks due to political and economic
volatility. Investors can capitalise on growth prospects while reducing exposure to
geopolitical and macroeconomic uncertainty by allocating capital across a balanced mix of
developed and emerging markets. Furthermore, currency fluctuations and international trade
dynamics have an impact on the effectiveness of global diversification initiatives,
necessitating a thorough evaluation of economic and political aspects.

Ethical and sustainable investing has also emerged as an important factor in modern
diversification methods. The incorporation of Environmental, Social, and Governance (ESG)
elements into investing decisions has gained substantial support, driving investors to diversify
portfolios in line with sustainability imperatives. Corporations with strong ESG standards
tend to have stronger long-term resilience and lower risk exposure, making them appealing
investment opportunities. As socially responsible investing gains popularity, diversification
strategies are projected to embrace more ESG-centric assets, reflecting the changing
objectives of investors and stakeholders alike.

As global financial markets evolve, new ideas and approaches will improve portfolio
diversification. The introduction of robo-advisors, for example, has made diversification
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more accessible to ordinary investors by providing algorithm-driven investing solutions
suited to individual risk tolerances. Furthermore, advancements in blockchain technology and
decentralized finance (DeFi) create new potential for diversification outside the traditional
asset classes. As financial instruments become more sophisticated, investors must stay
current and adapt to a more interconnected and turbulent global market landscape.

Portfolio diversification is an essential technique for reducing investment risk and increasing
returns, and it is a cornerstone of sound financial management in both the individual and
institutional investing landscapes. Investors can decrease their exposure to any single market
downturn by strategically distributing assets across a variety of asset classes, such as equities,
fixed income securities, real estate, commodities, and alternative investments. A well-
diversified portfolio reduces unsystematic risk by ensuring that poor performance in one area
is balanced by stability or growth in others. This strategy is especially important in volatile
market contexts, when changes in economic conditions, interest rates, and geopolitical events
can result in uncertain investment landscapes.

Understanding and measuring correlation dynamics among asset classes is critical to optimal
diversification. By selecting investments with low or negative correlations, investors can
improve risk-adjusted returns and reduce portfolio volatility. Bonds, for example, are
frequently used to hedge against equities market declines, whilst commodities such as gold
can provide a safe haven during times of economic instability. Advanced statistical
approaches, such as covariance analysis and stress testing, enable investors to predict and
forecast how various assets will interact under different market conditions. This analytical
technique is based on Harry Markowitz's Modern Portfolio Theory (MPT), which analytically
shows how diversification optimizes the risk-return trade-off. Using the principles of MPT,
investors can create robust portfolios that optimize returns for a given level of risk, ultimately
improving long-term financial outcomes.

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1.2 NEED OF THE STUDY
This research addresses a crucial knowledge gap by investigating the complex
interplay between significant political occurrences, namely Indian and U.S. elections, and the
performance of construction investment portfolios within the Indian stock market. The
influence of political events, particularly Indian and U.S. elections, on construction
investment portfolios in the Indian stock market is crucial. Elections often introduce
uncertainty, leading to market fluctuations that impact investor confidence and decision-
making. The construction sector, being highly dependent on government policies and
infrastructure projects, is particularly sensitive to these political changes. This study
examines how market behaviour shifts during different election phases pre-election, election,
and post-election highlighting the role of policy uncertainty in investment performance. This
Research seeks to furnish empirical evidence on how election results and subsequent policy
alterations affect portfolio performance, thereby facilitating well-informed investment
strategies. By analyzing past trends and portfolio responses to election cycles, this research
provides valuable insights into the relationship between political developments and market
outcomes. Investors, financial analysts, and policymakers can use these findings to better
navigate risks and make informed investment choices. Ultimately, the study enhances the
understanding of risk management and portfolio diversification strategies in politically
influenced market conditions.

1.3 STATEMENT OF PROBLEM

The primary goal of this research project is to develop a robust system for building an
optimum investment portfolio. This portfolio will include significant firms from the Reality
Industry Index, Financial Services, and Consumer Goods sectors, all of which are actively
traded on the National Stock Exchange of India (NSE). The fundamental goal is to maximize
possible investment returns while limiting financial risk exposure, all while recognizing and
adjusting to the Indian equity market's fundamental volatility and dynamic nature. This
involves using quantitative methods like quadratic programming to determine the weights of
each asset (Reality Industry Index, Financial Services, and Consumer Goods stocks) within

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the portfolio. The goal is to find the allocation that balances the desired level of return with
an acceptable level of risk, often visualized along an efficient frontier.

1.4 OBJECTIVES OF THE STUDY

 To know the profile of Reality, Financial Services and Consumer Goods Industry
 To study the Theoretical Framework of Portfolio Diversification
 To analyse the Impact of Nifty Index on the Indices of selected Industries
 To evaluate the performance of Portfolio by using Treynor and Jensen's Ratio
 To give suitable suggestion to the Investors and Recommendation to the prospectus
Investors.

1.5 HYPOTHESES
 The Indices of the Selected Industries are normally Distributed
 There are some patterns in the Industry Indices
 The return of the Selected Industries are stationary
 The Indices of Nifty is not significantly Influence the Indices of Selected Industries

1.6 LIMITATION AND SCOPE

The study only focuses on return of securities listed under three industries names
Reality, Financial Services and Consumer Goods industry. Which are listed in NSE and
remain industries in Nifty are considered. Moreover, study only focus on the global event
namely. USA presidential election and Indian parliamentary election in year 2024.

1.7 CHAPTERISATION
 Chapter 1
This chapter contains introduction, need, research problem, objectives, hypotheses
and limitations and scope
 Chapter 2
This chapter contains of literature review and framework.
 Chapter 3
This chapter contains research methodology.

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  Chapter 4
This chapter contains data analysis and interpretation of normality test, white
noise test, descriptive statistics, autocorrelation and partial auto correlation stationary
test, current and optimal weights, compares of portfolio and expected risk and return.
 Chapter 5
This chapter contains findings, suggestions and conclusion

CHAPTER-Ⅱ
REVIEW OF LITERATURE

2.1 LITERATURE REVIEW

Nguyen, T., & Hassan, M. K. (2024) participated in a thorough analysis of post-pandemic

diversification methods, emphasizing a fundamental shift in investing practices as a result of
increased inflationary pressures, interest rate volatility, and broader macroeconomic
uncertainty. Their findings highlight the growing importance of alternative investments such
as infrastructure, private equity, and sustainable assets, which have emerged as critical
components of resilient portfolios. The study demonstrates how traditional diversification
strategies, primarily focused on equities and fixed-income securities, have proven ineffective
in mitigating systemic risks in the post-COVID-19 era, prompting investors to consider
hybrid models that incorporate both conventional and non-traditional asset classes. The
increased allocation to illiquid investments shows a purposeful strategy to buffer against
inflation while raising long-term profits, particularly because tangible assets such as farms,
energy infrastructure, and carbon credits provide stability during market changes.
Furthermore, their findings show that the evolution of diversification strategies is being
driven by a growing recognition of the benefits of alternative investments, not only in terms
of lowering overall portfolio volatility, but also in terms of aligning with long-term
investment trends and economic shifts. According to the authors, this shift toward hybrid
diversification models represents a broader movement in portfolio management, in which
adaptability, liquidity concerns, and exposure to real assets are critical in navigating
unexpected economic conditions. As investors adjust their strategies in response to global
financial disruptions, Nguyen and Hassan emphasize the importance of incorporating a mix
of traditional and alternative investments to achieve optimal risk-adjusted returns and
maintain portfolio resilience in an ever-changing market landscape.

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Painoli, Bommisetti, Kaila, Moorthygari, Archana, & Krishan (2024) Examine the
impact of portfolio performance on international portfolio diversification, focusing on Indian
investors and their allocation strategies in 22 foreign markets (11 emerging and 11
developed). The study investigates whether international diversification improves investment
returns while lowering risk, particularly during structural disruptions such as financial crises.
Using co-integration research, the authors determine whether stock markets in various
locations move independently or share long-term trends, thus reducing the benefits of
diversity. The findings indicate that global diversification is helpful for Indian investors,
especially during times of economic instability, as developing and developed markets have
various degrees of correlation with India's stock market. The report does, however, highlight
several concerns, such as exchange rate risks, investment impediments, and market-specific
risks, which can all have an impact on portfolio performance. The study also combines
Modern Portfolio Theory (MPT) with co-integration methodologies, proving that avoiding
highly correlated markets increases risk-adjusted returns. The authors suggest that Indian
investors can maximize their portfolios by deliberately selecting markets with minimal
correlation to the domestic economy, but they emphasize the importance of closely
monitoring global market circumstances to maintain diversification benefits.

Nguyen, Hoang, & Nhan (2023) Investigate the relationship between financial literacy and
portfolio diversity in Vietnam's nascent financial market, focusing on how investors' financial
knowledge influences their investment choices. Using an online survey of 343 active
investors, the study evaluates both basic and advanced financial knowledge and its impact on
portfolio composition and asset allocation. The findings show a strong link between financial
literacy and portfolio diversification, with better financial understanding resulting in more
diverse investment portfolios. Notably, investors that understand the time value of money,
risk measurement, and digital currencies tend to diversify their portfolios beyond stocks,
including bonds, commodities, and other financial instruments. However, the study also
indicates that general economic knowledge has no substantial affect on diversification
decisions, implying that specific financial literacy, rather than broad economic awareness, is
more important for portfolio management. Furthermore, personal factors like as income level
and employment position influence diversification techniques, with higher-income
individuals exhibiting greater asset allocation diversity. The authors underline that improving
financial education can help investors make better judgments, promote market efficiency, and
contribute to Vietnam's overall financial market development. They suggest that financial

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literacy is a critical driver of portfolio diversification, and policymakers should launch
educational initiatives to assist investors in making better educated and strategic investing
decisions.

Fransiska, Rahmawati, Saputra, & Pandin (2023) Examine the influence of stock
portfolio diversification on investment returns and risk reduction, with a focus on Indonesia's
IDX Energy sector. Purposive sampling is used in the study, with five stocks (MEDC, AKRA,
ITMG, ADRO, and PTBA) chosen and individual stock risk compared to portfolio risk
assessed using correlation matrix analysis, anticipated return, and variance estimates. The
data show that all of the selected stocks have positive correlations, which means that their
price movements tend to go in the same direction. Among them, the correlation between
AKRA and ADRO equities is the largest, while MEDC and ADRO have the lowest
correlation, implying that the portfolio has some level of diversification benefits. The analysis
reveals that the portfolio's expected return and risk performance are often superior to
individual stock performance, lending support to the Modern Portfolio Theory (MPT) tenet
that diversification decreases non-systematic risk. A hypothesis test utilizing the Unknown
Population Standard Deviation (σ) approach demonstrates that the risk of a diversified
portfolio is much lower than individual stock risk, strengthening the case for portfolio
diversity as a risk management strategy. However, the report also emphasizes that
diversification does not always result in higher returns, as predicted returns are influenced by
broader market circumstances and stock selection. The authors suggest that while developing
diversified stock portfolios, investors should take a balanced approach, taking into account
both risk reduction and return optimization, and avoid high-risk investment techniques that
have not been properly assessed.

Dziuba, Glukhova, & Shtogrin (2022) Analyze the international diversification trends and
risk-return dynamics in global equity markets by classifying 30 developed and emerging
stock markets according to return, risk, and international diversification level using k-means
clustering analysis. The analysis demonstrates that, although there is considerable variance
within developed markets, investors in developed markets often attain greater worldwide
diversification than those in emerging economies. The results show that whereas emerging
markets have more varied patterns of international diversification, developed markets fall into
three different clusters, with low (22%) to mid (43%) to high (61%) degrees of international
diversification. Since markets with the highest degrees of diversification occasionally face
increased risk without corresponding return gains, the analysis finds no strong correlation

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between international diversification and superior risk-adjusted returns, which is contrary to
expectations. The findings imply that although established markets often have better risk-
return ratios, international diversification by itself does not provide either lower risk or higher
profits. The authors suggest that investors must carefully weigh the trade-offs between
diversification, risk, and expected returns, as excessive international exposure may increase
volatility without delivering certain benefits. The paper also emphasizes the role of
behavioral finance elements, such as home bias, in affecting international investment
decisions, arguing that future research should combine behavioral and economic viewpoints
to maximize global portfolio strategies.

Alqaralleh, & Canepa (2022) investigate the impact of precious metals in portfolio
diversification during the COVID-19 pandemic, utilizing a wavelet-based quantile correlation
technique to determine how gold, silver, platinum, and palladium interact with stock markets
in periods of financial turmoil. The study focuses on the BRIC (Brazil, Russia, India, and
China) and US stock markets, examining if these metals serve as safe-haven assets during the
first wave of COVID-19 (December 2019–July 2020). The data show that precious metals are
efficient diversifiers, especially during instances of significant stock market volatility. Gold is
discovered to be the strongest safe-haven asset, with negative correlations with stock markets
across various investment horizons, but silver, platinum, and palladium show differing
degrees of hedging potential depending on the time horizon. The Wavelet Quantile
Correlation (WQCOR) approach, a unique method that combines wavelet decomposition and
quantile regression to capture time-varying co-movements of assets, is described in this work.
The findings indicate that gold offers long-term diversification benefits, whilst silver and
platinum give short- to medium-term hedging options. The authors underline that investment
time horizons and market conditions have a considerable impact on diversification outcomes,
underscoring the importance of dynamic portfolio methods. The study suggests that precious
metals continue to be beneficial risk management assets during financial crises, however their
efficiency varies depending on the metal kind, market conditions, and investment term.

Zaimovic, Omanovic, & Arnaut-Berilo (2021) Provide a thorough assessment of the

literature on equity portfolio diversification, examining how the optimal number of stocks
required for diversification has changed over time and across markets. The study uses
bibliometric analysis and a systematic literature review to examine research from 1968 to
2021, with a focus on factors influencing portfolio size such as systematic vs. unsystematic
risk, market conditions, investor preferences, and financial crises such as the Global Financial

11
Crisis (GFC) and COVID-19 pandemic. The authors conclude that there is no universal
optimal number of stocks because diversification efficiency is dependent on market structure,
stock correlations, and investing strategies. While early studies claimed 8-10 equities were
sufficient for diversity, more current research indicates that 30-50 stocks, or even 100+, may
be required due to rising market integration. The study also finds that emerging markets
require fewer stocks for adequate diversification than developed markets, as their stock
correlations remain relatively low. Furthermore, the authors claim that machine learning
techniques can improve portfolio selection by dynamically altering asset allocation in
response to changing market conditions. The article suggests that while establishing the
optimum amount of stocks for a diversified portfolio, investors must evaluate aspects such as
their investing time horizon, market-specific risks, and changing financial dynamics.

Cavaliere et al. (2021) Investigate the impact of portfolio diversification on risk

management methods in the banking sector, with a focus on credit risk, market risk, liquidity
risk, and solvency risk as factors influencing financial stability. The study concludes that
appropriate diversification techniques serve to limit financial risks, hence boosting overall
bank performance. Using Pearson correlation analysis and regression models, the authors
examine how various risk factors interact and influence net income. The findings show that
stronger risk management ratios link with higher net income, highlighting the significance of
risk assessment in banking operations. The study also investigates the impact of Basel III
standards, which require banks to keep enough capital buffers to cover unexpected losses.
Furthermore, the study tackles the systemic risks posed by financial crises, underlining the
importance of comprehensive risk management frameworks that integrate business, credit,
and operational risks into a single approach. While portfolio diversity remains an important
risk-reduction measure, the authors note that issues like as regulatory compliance, changing
market conditions, and economic instability can all have an impact on its effectiveness. They
argue that banks must continuously improve their diversification and risk management
strategies in order to preserve financial resilience and maximize long-term profitability.

Flint, Seymour, & Chikurunhe (2020) examines the concept and measurement of portfolio
diversification, suggesting that, while diversification is widely accepted as an important
investment strategy, a precise quantitative definition is still lacking. The study divides
diversification measures into five categories: cardinality, weight-based, return-based, risk-
based, and higher-moment diversification measures, and offers a structured framework for
evaluating diversification efficacy. The authors apply these measurements to South African

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equity indexes such as the FTSE/JSE All-Share Index (ALSI), Shareholder Weighted All-
Share Index (SWIX), Top 40 Index, and Swix 40 Index, providing insights on historical
diversification levels in the domestic equities market. Their findings show that index
concentration and average asset correlation have a major impact on diversification outcomes,
with periods of financial volatility resulting in increased correlations and decreased
diversification advantages. The study introduces diversification profiles, a unique technique
that captures regime-dependent diversification behavior, allowing investors to proactively
modify portfolio strategies in response to projected market conditions. The authors conclude
that, while diversification remains a potent risk-reduction tool, its efficiency changes
depending on market regime, necessitating dynamic portfolio management to maximize its
benefits. They recommend more research into factor-based diversification strategies and
other risk measurements to increase the accuracy of diversity measurement in real-world
investing applications

Schmitz, & Hoffmann (2020) Investigate if cryptocurrencies improve portfolio diversity for
German investors by performing a mean-variance portfolio analysis with a customized
Equally-Weighted Cryptocurrency Index (EWCI) to avoid survivorship bias. The study uses
descriptive statistics, graphical approaches, and econometric spanning tests to assess the
diversification potential of cryptocurrencies from 2014 to 2019. Contrary to previous research
that suggested cryptocurrencies boost portfolio efficiency, the authors discover that
cryptocurrencies do not significantly improve the efficient frontier in most circumstances,
implying that investors do not receive greater risk-adjusted returns by integrating them.
Although cryptocurrencies can give diversification benefits in specific situations, this is not
the case all the time. The study also considers non-normality in cryptocurrency returns,
transaction fees, and liquidity difficulties, concluding that these variables reduce the potential
benefits of including cryptocurrencies in a diversified portfolio. While admitting
cryptocurrencies' speculative appeal, Schmitz and Hoffmann contend that they are not a
dependable diversification tool, especially for conservative investors. They encourage
investors to take caution when integrating cryptocurrencies in their portfolios, and that future
study should look into other risk assessment models to better assess their investment
potential.

Asness, C. S., Frazzini, A., & Pedersen, L. H. (2019) examined factor-based diversification
and argued that combining factors such as value, momentum, and low volatility improved

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risk-adjusted returns. They discovered that, when properly structured, factor-based
diversification produced superior long-term returns while reducing portfolio volatility. Their
findings emphasized the growing trend of multi-factor investing, in which portfolios are built
using systematic strategies that balance exposure to various investment factors, thereby
increasing resilience to macroeconomic changes. This study paved the way for modern risk-
premium strategies, which include dynamic allocation across multiple risk factors to improve
diversification.

Golosnoy, Hildebrandt, & Köhler (2019) Propose a realized measure of portfolio diversity
benefits that uses intraday high-frequency returns to estimate the volatility reduction achieved
by adding assets to a portfolio. The study expands on mean-variance portfolio theory by
proposing a realized diversification metric that quantifies how much risk can be reduced by
asset inclusion. The authors use time series modeling to estimate diversification benefits and
portfolio weight modifications, and they test their approach both in and out of sample. Their
empirical findings show that using high-frequency data allows for a more exact assessment of
diversification effects, assisting investors in determining whether to incorporate additional
assets to reduce risk. Using Heterogeneous Autoregressive (HAR) models, the study
discovers that anticipating diversification benefits improves portfolio variance reduction,
making the method applicable to real-world portfolio management. The study suggests that
realized diversification measures provide improved insights compared to traditional methods,
but it also admits limitations such as modeling complexities, market microstructure noise, and
data availability, all of which require additional refining for widespread adoption.

Viceira and Wang (2018) Explore the influence of cross-country correlations of cash flow
and discount rate shocks on investment risk. The study investigates how financial
globalization and market integration affect the benefits of diversity, specifically in the equity
and bond markets. Using empirical data from 1986 to 2016, the authors investigate whether
rising correlations among foreign markets have lessened the benefits of global diversification.
Their findings show that, while the connection between global stock and bond returns has
grown over time, owing primarily to financial crises and coordinated market movements, the
long-term benefits of global equity diversification remain unchanged. The study distinguishes
between cash flow shocks, which are persistent and raise risk over all time horizons, and
discount rate shocks, which are temporary and have a reduced influence on long-term
investment risk. The findings indicate that, for long-term investors, the increase in stock
return correlations does not significantly reduce the advantages of diversity, however the

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benefits of global bond diversification have decreased due to increased correlations in bond
cash flow shocks. Viceira and Wang argue that, while increased market correlations may
increase risk for short-term investors, long-term investors can still benefit from
diversification by focusing on assets that are less affected by discounted rate volatility. To
optimize global portfolio allocations, they do admit that variables like inflation shocks,
shifting risk premia, and changing market structures need to be regularly tracked.

Shen, & Turner (2018) Examine the appropriateness of financial advice on portfolio
diversification in retirement savings, specifically the proposal to transfer 401(k) plans to
Individual Retirement Accounts (IRAs). The study refutes the conventional industry premise
that IRAs provide better diversification because they offer a greater selection of investment
options than 401(k) plans, which typically have a limited number of funds. The authors use
empirical study of the Thrift Savings Plan (TSP), a government employee 401(k)-type plan
with only five basic investment options, to determine if a small number of funds may still
achieve adequate diversity. The findings show that having more investment options does not
always result in improved diversity, as many financial counselors fail to assess the quality
and cost of extra investments. The study emphasizes the conflicting nature of financial
advising, in which advisers, motivated by commissions or incentives, frequently advocate
unneeded rollovers that expose consumers to greater fees and potentially worse returns.
Furthermore, the authors explore how behavioral biases drive investors to believe that more
investment options always result in better financial outcomes, despite evidence indicating that
smaller, well-structured portfolios can be equally effective. The study also looks at the
psychological impacts of excess choice, demonstrating that having too many options can lead
to decision fatigue and poor investment decisions. Shen and Turner conclude that just rolling
over to an IRA for diversification may not be a wise financial decision, and investors should
carefully consider the costs, benefits, and any conflicts of interest before making such a
move.

Al-Ahad, & Akter (2018) Investigate the benefits of portfolio diversification and efficient
frontier analysis in stock and commodity markets, and see if including commodities improves
risk-adjusted returns. Using historical data from multiple asset classes, including equities, real
estate, and commodities such as gold, crude oil, and industrial metals, the study employs
correlation analysis and mean-variance optimization to create efficient portfolios. The
findings show that, while stocks and commodities typically have low or negative correlations,
not all commodities contribute favorably to portfolio outcomes. Among the assets examined,

15
gold is the most effective diversifier, as it consistently reduces risk and contributes to good
portfolio design. In contrast, other commodities, such as crude oil and industrial metals, have
negative or poor returns, limiting their diversification potential. The study follows by
employing Microsoft Excel Solver to create an efficient frontier, discovering the global least
variance portfolio and the best risk-return combination. The findings imply that investors can
improve their diversification by deliberately incorporating gold with stocks and eliminating
underperforming commodities. However, the study notes that commodity prices are
extremely volatile, necessitating that investors constantly modify portfolio allocations in
response to market conditions. The authors conclude that portfolio diversification benefits are
dependent on asset selection, risk correlation, and market movements, and they advocate a
well-planned investment strategy that balances equity and commodities exposure for long-
term financial stability.

Jayeola, Ismail, & Sufahani (2017) Examine the effects of asset diversification on portfolio
risk by using the Black-Litterman model to estimate risk and asset allocations in portfolios
containing gold, oil, silver, and platinum. The study emphasizes diversification as a critical
approach for reducing risk while increasing profits, allowing investors to move from small-
scale investments to larger markets. Using financial data from Yahoo Finance from 2000 to
2016, the authors build several portfolios and examine their risk levels, identifying gold as
the most effective asset for risk reduction, while platinum contributes the least. The findings
suggest that gold is an important hedge against economic downturns, making portfolios
incorporating gold more resilient to financial volatility. The study underlines the necessity of
cautious asset selection, advising investors to evaluate each asset's risk-reduction potential
before building their portfolios. While diversification enhances portfolio performance, the
study emphasizes that not all assets contribute equally to risk reduction, and that include low-
impact assets may dilute the benefits of diversification. The authors conclude that strategic
asset allocation, informed by risk analysis, is critical for building optimal portfolios, with
gold serving as a safe-haven asset that improves stability in uncertain economic times.

Han, Lee, Suk, & Sung (2017) Analyze the benefits and constraints of foreign
diversification into emerging stock markets from the perspective of US investors from 1995
to 2013. The study challenges the widely held idea that emerging economies provide
significant diversification benefits due to their historically low correlation with developed
markets. However, the findings indicate that these benefits have declined dramatically over
time, owing mostly to increased financial integration and a greater connection between the

16
United States and emerging markets. The analysis identifies many major issues that
undermine the argument for international diversification, including currency exchange rate
volatility, increased market co-movements, and worse risk-adjusted returns in emerging
markets. Using Sharpe ratios, the authors demonstrate that most developing countries
underperform the US equities market in terms of risk-adjusted returns, with Mexico being the
sole exception. Furthermore, regression research suggests that emerging markets are more
sensitive to U.S. stock market falls than to its growth, implying that during financial
downturns, these markets experience higher negative returns than positive returns during
periods of U.S. market expansion. The study suggests that, while international diversification
remains an important investing strategy, its effectiveness for U.S. investors’ confidence has
eroded as a result of exchange rate risks, synchronized global downturns, and heightened
market correlations, implying that investors may need to reconsider their allocation strategy
in developing markets to maximize risk-adjusted returns.

Meriç, Ding, & Meriç (2016) Pay attention to the worldwide portfolio diversification
benefits of emerging stock markets, including their ability to minimize risk for investors in
developed markets. Using Principal Components Analysis (PCA), the study evaluates stock
market co-movements in seven established economies (the United States, Canada, Germany,
the United Kingdom, France, Japan, and Australia) and twenty emerging nations from
January 1, 2003 to January 1, 2014. The data show that emerging economies have weaker
correlations with developed markets, which supports the traditional premise that they give
significant diversification benefits. However, the findings indicate that not all emerging
markets contribute equally to diversification, as some, such as Brazil, South Africa, Mexico,
and Russia, have a significant correlation with developed markets, providing modest risk
reduction. The PCA results show three unique principal components, which cluster markets
based on their similarity in return movements. According to the study, investors in developed
markets can maximize diversification benefits by investing in stocks from emerging markets
with different principal components, such as Southeast Asian markets (Indonesia, Philippines,
Malaysia, and Thailand) and Middle Eastern/North African markets (Jordan, Morocco, Egypt,
and Pakistan), which have a lower correlation with developed markets. The authors suggest
that while investing in emerging markets remains an effective diversification strategy, the
selection of specific markets and ongoing monitoring of correlation patterns are critical for
maximizing global portfolio performance.

17
Bessler, W., Opfer, H., & Wolff, D. (2016) accomplished a thorough investigation of multi-
asset portfolio diversification, with a focus on the dynamic interrelationships between asset
classes. Their findings highlighted the advantages of combining bonds, commodities, and
stocks to increase portfolio performance. Investors who diversify across different asset
classes may generate higher risk-adjusted returns than those who focus primarily on one. The
study also noted that asset class correlations are not constant; they fluctuate over time
according to market conditions, economic cycles, and outside shocks. As a result, investors
must constantly review and change their portfolio allocations to achieve maximum diversity.
This study underlines the significance of adaptive portfolio techniques in reducing risks and
enhancing long-term investment success.

Halicki, & Uphaus (2015) Examine foreign portfolio diversity as a useful technique for
wealth management, particularly in the post-financial crisis period. The study examines if
assembling a portfolio of equities from several countries results in higher returns with
acceptable risk levels, offering a benchmark-based investment strategy. The authors
emphasize that globalization has altered investment methods, necessitating a balance of risk
and reward in international equity markets. Using historical stock price data and empirical
analysis, the study proposes an investment approach based on stock selection across
numerous markets, illustrating how global diversification improves portfolio performance.
The study also criticizes the typical home bias effect, in which investors choose domestic
assets despite the possible benefits of overseas exposure. While other studies claim that
international diversification has limited benefits due to correlated market movements, Halicki
and Uphaus contend that effective stock selection can still produce above-average returns by
carefully limiting risk exposure and optimizing market selection. Their methodology suggests
selecting companies based on market capitalization, economic stability, and investor
protection measures, guaranteeing that diversification reduces risk rather than adding
complexity. The findings show that worldwide diversity broadens investment opportunities,
allowing investors to adapt to changing economic cycles and lessen localized financial risks.
The report does, however, highlight obstacles like as foreign exchange risks, transaction
costs, and the requirement for dynamic portfolio rebalancing to sustain long-term success.
Ultimately, The authors conclude that foreign portfolio diversity is still a worthwhile wealth
management technique, but its success is dependent on effective stock selection, ongoing
monitoring, and strategic rebalancing to maximize returns while limiting risk.

18
Horobet, & Belascu (2014) Investigate how well emerging markets may diversify
international equity portfolios, taking into account the two significant global financial crises
that occurred between 2004 and 2013. The study investigates whether, in light of the growing
financial connectivity between international markets, emerging nations still offer significant
benefits for diversification. The authors compare emerging and developed markets using
statistical measures of risk and return and correlation analysis, concentrating on skewness,
kurtosis, standard deviation, and average returns to ascertain their relative performance. The
results indicate that while developing markets' correlations with established markets have
remained strong throughout time, especially during financial crises, they are no longer as
useful as they once were as tools for diversification. The study casts doubt on the
conventional wisdom that emerging markets provide better risk-adjusted returns by
demonstrating that, frequently, investors are underpaid for the higher risks involved in
investing in emerging economies. According to the findings, emerging markets often mimic
the volatility of developed markets during periods of financial strain, which lessens their
capacity to protect themselves against downturns. According to Horobeţ and Belaşcu,
emerging markets no longer offer the same degree of portfolio diversification advantages as
they once did, even though they still present investment opportunities. They recommend a
more dynamic approach for investors looking for global diversity, incorporating elements like
market cycles, economic conditions, and regional financial stability to maximize portfolio
performance.

Al Bakri (2014) analyzes the stock returns of property firms (PCs) between February 2008
and February 2012 to determine how portfolio diversification methods affect the performance
and risk of the Middle East Real Estate Industry (MEREI). The study makes a distinction
between non-systematic risk (firm-specific risk), which may be reduced by diversification,
and systematic risk (market risk), which cannot be eliminated by diversification. The study
assesses the effects of adding more real estate assets to a portfolio on overall risk reduction
and return stability using standard deviation and beta as important risk metrics. According to
the results, non-systematic risk decreases with the addition of assets to the portfolio; the ninth
asset portfolio achieves total diversification, leaving only 0.005% of systematic risk
unabated. However, as the returns are mostly determined by the correlation between the
stocks of real estate companies and the larger real estate market, the study reveals no clear
link between portfolio diversity and predicted returns. Al Bakri goes on to say that investors
should actively monitor their real estate portfolios and modify asset combinations in response

19
to shifting market conditions, as a passive diversification strategy is insufficient on its own to
maximize returns and minimize risk. In order to improve portfolio performance, the report
concludes by advising Middle Eastern investors to diversify among a number of real estate
firms while maintaining flexibility in their approach. Notwithstanding the advantages of
diversification, in order to maximize the returns on real estate investments, issues including
market volatility, economic instability, and regional regulatory disparities must be properly
addressed.

Demirer, R., & Kutan, A. M. (2013) investigated the impact of foreign portfolio
diversification in emerging countries, with a particular emphasis on how globalization has
influenced cross-border investment strategies. Their findings revealed that, while diversity
remains desirable, growing market integration has resulted in stronger correlations across
global assets, eliminating some of the traditional advantages of investing across borders.
They conducted asset price analysis and discovered that economic shocks in developed
markets had a considerable impact on emerging market returns. Their findings also
highlighted the necessity of geographical diversification within emerging markets for
successful risk management. Sectoral diversity, particularly in businesses such as energy,
technology, and infrastructure, has been proved to have extra benefits. They also stated that
political and economic risks, such as capital controls and trade barriers, have a substantial
impact on diversification methods. Their work is still relevant for investors looking to
balance exposure to emerging markets while mitigating systemic risk.

Wilcox, & Gebbie (2013) Applying stochastic portfolio theory (SPT) to the South African
equities market from November 1994 to May 2007, this study examines the impact of capital
distribution, stock ranking changes, and dividends on portfolio returns. The study contradicts
established models that explain portfolio performance purely through macroeconomic and
socioeconomic variables, instead highlighting capital flows as a critical risk element
impacting market dynamics. The study shows how market capitalization movements and
stock ranking changes affect long-term investment returns by breaking down portfolio returns
into distributional, rank, and dividend components. The data imply that small-cap stocks are
more vulnerable to financial crises, with prices moving more sharply than mid- and large-cap
stocks, particularly during the 1998 Asian crisis and the 2008 global financial crisis. The
study also finds that net portfolio investment (NPI) is critical to driving equity returns, with
strong correlations between foreign capital inflows and market behavior. Wilcox and Gebbie
conclude that stochastic portfolio factorization provides a useful framework for analyzing

20
investment trends in emerging economies, particularly during periods of high volatility.
However, they acknowledge that elements such as liquidity restrictions, investor attitude, and
external macroeconomic shocks must be taken into account in order to fully understand
market dynamics and improve portfolio risk management measures.

Van Dyk, Van Vuuren, & Styger (2012) Examine the Portfolio Diversification Index (PDI)
as an alternative measure for analyzing diversification in investment portfolios, and compare
it to the classic Residual Variance (RV) approach. The paper criticizes the RV approach,
which assesses diversification in relation to a market index, claiming that it is problematic
when the market index itself is not well-diversified. The PDI, which was established as a
market-independent diversification measure, quantifies diversification by examining the
number of really independent risk components inside a portfolio using Principal Component
Analysis (PCA). The authors use the PDI to rank South African unit trusts based on diversity
and compare these rankings to other risk-adjusted performance measures such as the Sharpe
ratio, Sortino ratio, Omega ratio, and Treynor ratio. Their findings demonstrate that the PDI is
a more accurate and flexible measure of diversification, particularly in highly concentrated
markets, because it is not influenced by market index biases. The paper also emphasizes the
inverse relationship between diversification and concentration risk, claiming that the PDI
accurately reflects this dynamic. Furthermore, the authors investigate the PDI's practical
application in portfolio management, demonstrating that it may be utilized to optimize
portfolio allocation by identifying securities that improve diversification while not lowering
expected returns. The study suggests that the PDI is a better alternative to traditional
diversification techniques, especially in situations where index-based judgments are
incorrect. However, The authors observe constraints such as the PDI's novelty, limited
historical data availability, and regulatory recognition issues, implying that additional study is
required to refine its implementation in global financial markets.

Odit, Dookhan, & Marylin (2011) Investigate the relationship between risk management
and portfolio diversity in Mauritius' banking sector, with an emphasis on how diversification
techniques affect financial stability and risk exposure. The study concludes that, while well-
diversified portfolios are key to financial theory, Mauritian banks confront difficulties in
efficiently reducing unsystematic risk due to market limits and regulatory concerns. Using a
modified questionnaire and statistical analysis, including Cronbach's Alpha, Pearson's
Correlation Coefficients, one-way ANOVA, and OLS estimations, the study highlights market
risk, operational risk, and credit risk as the three most serious dangers to Mauritian banks.

21
The data show that portfolio diversification is a good risk management approach, with banks
using both local and international diversification to reduce risk exposure. However, there is a
significant difference in the effectiveness of domestic and international diversification, with
foreign exchange exposure having an important part in defining a bank's risk appetite. The
paper goes on to explore the impact of financial crises on banking institutions, underlining
that diversification is insufficient without robust risk assessment frameworks and regulatory
compliance requirements like Basel II. While the study demonstrates that diversification
helps to lower total banking risks, it also emphasizes the need for Mauritian banks to improve
internal risk controls, broaden international investment options, and tighten financial
oversight in order to maintain long-term stability. The authors argue that good risk
management combined with smart portfolio diversification, is critical for Mauritius' banking
sector to remain powerful yet, concerns like as liquidity risks, economic instability, and
growing regulatory requirements must be handled to enhance financial performance.

Kiani (2011) explores the connection between Value at Risk (VaR) and portfolio
diversification by examining stock investments in both domestic and foreign markets, with a
particular emphasis on the Indian BSE (100) National Index and stock price indexes from
different developed and emerging economies. The study evaluates how diversification affects
portfolio risk exposure using correlation analysis and VaR methods, specifically determining
if foreign diversification offers more robust risk reduction than domestic diversification. The
results show that although domestic diversification lowers risk by distributing assets
throughout several industries, it does not completely remove serious weaknesses in a
portfolio. International diversification, on the other hand, provides a more significant risk
reduction because worldwide markets frequently show lower or negative correlations, which
means that investments in one area are less likely to be impacted by downturns in another.
Kiani quantifies stock price correlations using Pearson's R statistic and discovers that
internationally diversified portfolios have significantly lower VaR than domestically
diversified portfolios, demonstrating the benefits of allocating capital across multiple markets
to achieve stability and risk minimization. Furthermore, the study demonstrates how financial
crises exacerbate investment risks, particularly in developing markets, as economic stress
from rich countries spreads to less resilient economies, boosting market volatility and
possible losses. Kiani underlines the importance of diversification across industries and
countries for long-term financial security since it acts as a buffer against systemic shocks.
Despite the benefits of global diversification, problems such as financial market integration,

22
currency fluctuations, and regulatory framework variances must be addressed in order to
optimise investment plans. The study suggests that international diversity is an effective way
to reduce overall portfolio risk while enhancing return predictability, but investors must take
into account external factors that influence global financial markets in order to fully reap the
benefits.

Painter (2010) examines how Farmland Real Estate Investment Trusts (F-REITs) contribute
to portfolio diversification by evaluating their impact on financial performance and risk-
return characteristics. The analysis, which uses historical data from 1972 to 2008, concludes
that F-REITs provide somewhat stable returns that are greater than bonds and have less
volatility than stocks and regular REITs. According to the study, agricultural investments are
a good way to diversify your portfolio because they have little to no link with other financial
assets. However, the analysis finds that because F-REITs assist lower portfolio risk at an
expected return level of 8%, they offer the biggest advantages for investors with medium
levels of risk. Investors with less risk, who prioritize Treasury bills and bonds, do not
significantly benefit from farmland investments, while high-risk investors who are looking
for the highest profits can find them less alluring than stocks. In addition to the financial
advantages, Painter talks about the wider economic effects of F-REITs, pointing out that they
help with land transactions by allowing retired farmers to sell their property and provide lease
options to growing farm operators. Notwithstanding these benefits, the study notes drawbacks
such restricted liquidity, market accessibility, and possible hazards associated with climate
change and changes in agricultural prices. Painter contends that although F-REITs have the
potential to improve portfolio performance, further investigation is required to examine legal
frameworks and the long-term viability of farmland investments.

2.2 THEORITICAL FRAMEWORK OF PORTFOLIO DIVERSIFICATION

DEFINITION

Portfolio diversification is a key investment strategy that involves distributing

investments across various asset classes, industries, and geographical locations to mitigate
risk and enhance returns. The main goal of diversification is to lower exposure to
unsystematic risk, which pertains to specific securities or sectors while maintaining
opportunities for gains. This strategy operates on the principle that different assets react

23
differently to market conditions, allowing a diversified portfolio to reduce volatility and
promote long-term financial stability.

THEORETICAL FOUNDATIONS OF PORTFOLIO DIVERSIFICATION

The concept of portfolio diversification is largely derived from Modern Portfolio Theory
(MPT), introduced by Harry Markowitz in 1952. This theory posits that investors can
assemble an "efficient portfolio" that optimizes expected returns relative to a given level of
risk by strategically selecting assets with varying risk-return profiles. The core elements of
MPT include:

 Efficient Frontier: A curve that illustrates the optimal portfolios providing the highest
possible return for a specified risk level.

 Risk and Return Trade-off: Investors must find a balance between potential returns
and risk reduction by selecting a well-structured asset mix.

 Correlation Coefficients: Diversification is most effective when assets have low or

negative correlations, meaning their price movements are not closely linked.

 Systematic vs. Unsystematic Risk: While systematic risk (market-wide risk) is

unavoidable, diversification helps reduce unsystematic risk, which is specific to
industries or individual companies

FORMS OF PORTFOLIO DIVERSIFICATION

Portfolio diversification can be implemented through various asset allocation approaches:

 Industry Diversification: Allocating investments across different sectors such as

consumer goods, financial services, and real estate to reduce sector-specific exposure.

 Asset Class Diversification: Combining different asset types, including stocks, bonds,
real estate, commodities, and alternative investments, to balance risk and returns.

 Geographic Diversification: Spreading investments across domestic and international

markets to mitigate risks associated with economic and political fluctuations in specific

24
 regions.

 Time-Based Diversification: Phasing investments over time, such as through dollar-

cost averaging, to minimize the impact of market timing risks.

IMPLICATIONS OF PORTFOLIO DIVERSIFICATION

 Risk Reduction: Diversification helps decrease portfolio volatility by ensuring that

losses in one area can be offset by stability or gains in another.

 Enhanced Returns: While it does not guarantee higher profits, diversification can
improve a portfolio's risk-adjusted returns over time.

 Protection During Market Crises: A well-diversified portfolio tends to be more

resilient in economic downturns and financial crises.

 Challenges of Over-Diversification: Excessive diversification can dilute returns and

increase transaction costs, reducing the strategy's overall efficiency.

EMPIRICAL EVIDENCE SUPPORTING PORTFOLIO DIVERSIFICATION

Financial research, including studies on post-pandemic investment strategies and risk

management, underscores the benefits of diversification. Empirical findings indicate that
diversified portfolios generally outperform undiversified ones over time while maintaining
lower volatility. However, shifts in market integration and correlations during financial crises
emphasize the necessity of continuous portfolio rebalancing.

STATISTICAL AND FINANCIAL MODELS USED

Treynor Ratio (1965, Treynor):

The Treynor Ratio focuses on systematic risk (beta) instead of total risk. It is
especially useful for portfolios that are part of a larger diversified investment. The formula is:
E ( RP )−R f
T=
βP
E ( R P )= Expected portfolio return

25
R f = Risk-free return
β P = Portfolio beta
Unlike the Sharpe Ratio, the Treynor Ratio considers only market-related risk, making it
sensitive to the choice of the benchmark index used to compute beta.

Jensen’s Alpha (1968, Jensen):

Jensen’s Alpha measures the abnormal return of a portfolio compared to its expected
return under the CAPM framework. It evaluates the portfolio manager’s ability to outperform
the market by picking undervalued assets. The formula is:
α P =( R P−R f )−β P ( R M −R f )
α P = Portfolio return
R M = Market return
R f = Risk-free return
β P = Portfolio beta
A positive alpha indicates superior performance due to skilful management, while a negative
alpha suggests underperformance.

Regression Analysis
To measure the relationship between portfolio returns and market indices (NIFTY
50). The formula is:
Rp=α+βRm+e
α = alphaα is the intercept, β = betaβ represents market sensitivity, and e = the error term.

2.3 COMPANIES PROFILE

For this research they are three industries where selected and each Industries will contain four
Securities

1. REALITY INDUSTRY INDEX

DLF Ltd

DLF Ltd, founded in 1946 by Chaudhary Raghvendra Singh, is one of India’s largest
and most influential real estate developers. Headquartered in Gurugram, Haryana, the
company has played a significant role in transforming India’s urban landscape. With a legacy

26
spanning over seven decades, DLF has been instrumental in shaping commercial, residential,
and retail infrastructure across key Indian cities, particularly in the Delhi-NCR region.

DLF’s business operations are divided into two primary segments: development and rental
properties. The development business includes the construction and sale of residential,
commercial, and retail properties. DLF has developed numerous landmark projects, catering
to a diverse clientele, from luxury homebuyers to corporate enterprises. The company’s
residential offerings range from high-end luxury condominiums and villas to mid-segment
and affordable housing. The rental business focuses on leasing office spaces, shopping malls,
and other commercial properties. DLF Cyber City in Gurugram is one of the most significant
business hubs in India, housing multinational corporations, IT firms, and Fortune 500
companies. The company also owns and operates high-end retail destinations such as DLF
Emporio, DLF Promenade, and DLF Mall of India, which have redefined shopping and
entertainment experiences in the country.
DLF is known for several iconic projects, including DLF Cyber City in Gurugram, a leading
business district with state-of-the-art commercial spaces, and DLF Emporio and DLF
Promenade, premium shopping destinations offering luxury and lifestyle brands. Other
landmark developments include DLF Golf Links, a world-class residential and golf resort
community, and high-end residential projects such as DLF Midtown and DLF Camellias,
designed to offer ultra-luxurious living experiences.

Macrotech Developers Ltd

Macrotech Developers Ltd, commonly known as Lodha Group, is a prominent real
estate company founded in 1980. Based in Mumbai, the firm is recognized for its expertise in
luxury and affordable housing developments, both in India and internationally. It has been
responsible for delivering some of India's tallest and most iconic residential projects, such as
The World Towers, Palava City, and Lodha Park.
The company operates across residential, commercial, and industrial sectors, with a strong
presence in Mumbai, Pune, and London. With a focus on sustainable urban development, it
integrates green architecture and smart city initiatives into its projects.
Expanding its business portfolio, Macrotech has entered the warehousing, logistics parks, and
data center sectors, which have seen significant growth in recent years. Additionally, it has
partnered with global investors to scale its project offerings.
On the financial front, Macrotech has experienced substantial growth, driven by increasing
real estate demand in metropolitan areas. The company has successfully reduced its debt and
enhanced operational efficiency. With ongoing expansion and investments in high-end real
estate, Macrotech Developers continues to be a key player in India’s property market.

Godrej Properties Ltd

27
 Godrej Properties Ltd, a part of the Godrej Group, was established in 1990 and is
based in Mumbai. The company specializes in residential, commercial, and township
developments across India, with a strong emphasis on sustainability, green building practices,
and innovation in real estate.
Key developments by Godrej Properties include Godrej One, The Trees, and Godrej Golf
Links. The company maintains a significant presence in major metropolitan areas like
Mumbai, Pune, Bangalore, and the NCR region. It has also collaborated with global investors
and developers to strengthen its project portfolio.
Recognized as a leader in sustainable real estate, Godrej Properties prioritizes environmental
conservation and energy-efficient construction. The company has received multiple accolades
for its commitment to green architecture and continues to innovate in eco-friendly urban
development.
Financially, the company has sustained robust revenue growth, driven by increasing sales in
the luxury and mid-segment residential markets. Additionally, it is leveraging digital
marketing strategies and technology to enhance customer engagement and optimize project
management.

Phoenix Mills Ltd

Founded in 1905 and headquartered in Mumbai, Phoenix Mills Ltd is a leader in
retail-led mixed-use developments. The company operates some of India’s most well-known
shopping malls, commercial complexes, and entertainment hubs.
Its premier properties include High Street Phoenix, Phoenix Marketcity (Mumbai, Pune,
Bangalore, Chennai), and Palladium malls across various locations. Phoenix Mills has
capitalized on the expansion of India’s retail and entertainment industries by creating high-
end lifestyle destinations.
Beyond retail, the company has expanded into hospitality and luxury hotels, offering
premium shopping and leisure experiences. Collaborations with international brands have
further enriched the retail experience within its properties.
From a financial standpoint, Phoenix Mills has maintained steady growth, supported by
increasing rental income from its high-value commercial assets. It continues to expand its
retail presence while diversifying into hospitality and residential segments to drive long-term
growth.

2. FINANCIAL SERVICES INDUSTRY

HDFC Bank Ltd

Established in 1994, HDFC Bank is among India’s largest private sector banks.
Headquartered in Mumbai, the bank offers a wide range of financial services, including retail

28
and corporate banking, loans, wealth management, and digital banking solutions. With an
extensive branch and ATM network across the country, HDFC Bank has built a strong
customer base.
The bank has been at the forefront of digital transformation, expanding its fintech
collaborations and AI-powered customer service solutions. Investments in cybersecurity,
mobile banking innovations, and rural banking initiatives have further strengthened its
position, promoting financial inclusion in semi-urban and rural areas.
Financially, HDFC Bank has maintained steady growth with a strong balance sheet, high
profitability, and a low non-performing asset (NPA) ratio. Its capital adequacy remains
robust, reinforcing its reputation as one of the most stable banking institutions in India. The
bank’s diversified offerings and expansion strategies continue to enhance its market presence.

Bajaj Finance Ltd

Bajaj Finance Ltd, a subsidiary of Bajaj Finserv, was founded in 1987 and is
headquartered in Pune. It is among India’s top non-banking financial companies (NBFCs),
offering consumer loans, SME financing, and wealth management services.
The company has revolutionized consumer lending by offering easy financing for home
appliances, electronics, and personal loans. It has developed a strong digital ecosystem with
AI-driven risk assessment tools that enhance loan approval processes and credit evaluation.
Bajaj Finance has also entered the co-branded credit card and digital wallet segments, further
diversifying its offerings.
On the financial front, the company has demonstrated exceptional growth with increasing
loan disbursements, a strong asset base, and robust profit margins. With a low NPA ratio and
a focus on risk management, Bajaj Finance remains a dominant player in the NBFC sector,
leveraging technology and a customer-centric approach.

State Bank of India (SBI)

Established in 1955, the State Bank of India (SBI) is the country’s largest public
sector bank. Headquartered in Mumbai, SBI plays a crucial role in India’s financial
landscape, providing services such as retail and corporate banking, investment banking, and
international banking.
With a vast network of over 22,000 branches nationwide and a strong global presence, SBI
has embraced digital transformation by launching SBI YONO, an integrated digital banking
and investment platform. This has enhanced customer experience and accessibility to banking
services.
Financially, SBI has remained resilient, backed by strong government support. The bank has
improved asset quality, reduced non-performing assets, and continues to expand into new
financial segments, reinforcing its leadership position in India’s banking industry.

29
Axis Bank Ltd
Axis Bank, established in 1993 and based in Mumbai, is a leading private sector bank
in India. It offers a comprehensive range of financial services, including retail and corporate
banking, wealth management, and foreign exchange solutions.
The bank has significantly invested in technology, improving digital banking services and
mobile applications. It has partnered with fintech companies to enhance financial
accessibility and introduce innovative savings and loan products for young professionals and
small businesses.
Financially, Axis Bank has demonstrated steady growth with a focus on improving asset
quality and customer acquisition. With a well-diversified portfolio and strong risk
management framework, the bank remains a key player in India’s banking sector

3. CONSUMER GOODS INDUSTRY

Hindustan Unilever Ltd (HUL)

Hindustan Unilever Ltd, a subsidiary of Unilever, was founded in 1933 and is one of
India’s largest fast-moving consumer goods (FMCG) companies. Headquartered in Mumbai,
it operates across various categories, including personal care, home care, food, and
beverages.
Its extensive brand portfolio includes Lux, Surf Excel, Horlicks, Lipton, and Dove. With a
vast distribution network covering both urban and rural areas, HUL has established itself as a
market leader. It has also embraced digital transformation and e-commerce to strengthen its
reach.
HUL prioritizes sustainability by reducing plastic waste and incorporating renewable energy
in its manufacturing processes. The company is also expanding its portfolio with health-
focused and organic product lines to meet evolving consumer preferences.
Financially, HUL has consistently delivered strong revenue growth and profitability,
supported by new product launches and acquisitions that enhance its market position.

Nestlé India Ltd

Nestlé India Ltd, a subsidiary of Nestlé S.A., has operated in India since 1912. Based in
Gurugram, it is a key player in the food and beverage sector, with popular brands like Maggi,
Nescafé, Kit-Kat, and Cerelac dominating their respective categories.

30
The company focuses on innovation and health-conscious product development, expanding
its presence across both urban and rural markets. It has also strengthened its distribution
network and digital engagement strategies to reach a wider consumer base.
Nestlé India invests heavily in research and development to introduce healthier food options.
It leverages digital sales channels and strategic marketing campaigns to enhance brand
visibility and market penetration.
Financially, the company has shown consistent growth, driven by strong brand loyalty and an
expanding product portfolio. Sustainability efforts, including improved packaging and
reduced carbon footprint, remain a priority.

Britannia Industries Ltd

Founded in 1892 and headquartered in Kolkata, Britannia Industries Ltd is one of
India’s leading food processing companies, specializing in bakery products, biscuits, dairy
items, and snacks. Some of its well-known brands include Good Day, Marie Gold, Tiger, and
NutriChoice.
Britannia has a robust distribution network catering to both urban and rural markets, ensuring
a strong market presence. The company has prioritized innovation by introducing healthier
product variants, including fortified biscuits and protein-rich snacks.
Expanding its global footprint, Britannia exports products to over 60 countries. The company
has also invested in automation and advanced manufacturing facilities to enhance efficiency
and product quality.
Financially, Britannia has maintained steady revenue growth, supported by strong brand
recognition and increasing consumer demand. The company continues to focus on R&D,
marketing, and sustainability to reinforce its market leadership.
ITC Ltd
ITC Ltd, founded in 1910, is a diversified conglomerate headquartered in Kolkata.
The company operates across multiple industries, including FMCG, hospitality, paperboards,
agribusiness, and information technology.
Its FMCG segment includes renowned brands such as Aashirvaad, Sunfeast, Bingo,
Classmate, Fiama, and Vivel. ITC has expanded beyond tobacco products, strengthening its
presence in packaged foods, personal care, and lifestyle segments.
ITC has also invested in backward integration, ensuring control over its supply chain,
especially in agribusiness and paperboard production. The company actively promotes
sustainability, with initiatives focused on water conservation, carbon neutrality, and
renewable energy adoption.
Financially, ITC has maintained steady growth, with its FMCG business contributing
significantly to overall revenue. While cigarettes remain a key revenue driver, the company

31
has aggressively expanded into packaged foods and personal care, diversifying its income
streams.

CHAPTER-Ⅲ
RESEARCH METHODLOGY

3.1 RESEARCH DESIGN

This research adopts a secondary data analysis approach to investigate the influence
of Indian and U.S. elections on construction investment portfolio performance. Instead of
generating new data through primary methods like surveys or experiments, this study
leverages existing, publicly accessible historical data. This strategic choice allows for the
examination of long-term market behaviors and trends, providing a broad perspective on
market dynamics. By utilizing pre-existing datasets, the study facilitates a comprehensive
evaluation of market volatility and portfolio returns during the specified election periods.
This design enables a retrospective assessment of market reactions, offering valuable insights
without the logistical complexities inherent in primary data collection.

3.2 PERIOD OF THE STUDY

The time frame for this study is set from June 2024 to December 2024, encompassing
a pivotal period of market activity shaped by the Indian and U.S. elections. This interval is

32
deliberately chosen to capture the immediate pre-election, election, and post-election market
fluctuations. The focus is on analyzing the risk and return characteristics of construction
investment portfolios, specifically those listed on the NSE. This study aims to discern how
political events affect market volatility and investor returns within the construction sector.
This concentrated timeframe facilitates a detailed analysis of market responses to electoral
outcomes and related policy shifts, yielding timely and relevant findings.

3.3 NATURE OF THE DATA & METHOD OF DATA COLLECTION

This study utilizes secondary data obtained from established and reliable online
financial platforms. This approach ensures the data's credibility and accessibility.
Specifically, daily index data are sourced from Investing.com, a reputable financial data
provider. Investing.com offers extensive historical financial data, including stock prices,
indices, and market indicators, essential for time-series analysis. The collection of daily data
allows for a nuanced examination of market fluctuations and trends, capturing the dynamic
responses of the stock market to election-related events. This methodology ensures a
consistent and robust dataset, enabling accurate and dependable analysis

3.4 DATA ANALYSIS

After the data collection is over the collected stock prices under Reality, Financial
Services and Consumer Goods industry are converted into stock returns and the analysis was
carried out by using software such as XL STAT and GRETL 2025 (GNU, REGRESSION,
ECONOMETRICS AND TIME-SERIES LIBRARY) for portfolio optimization. The analysis
was done at different stage. In stage 1, normality of returns is checked by Box-Pierce
Statistic, Ljung-Box Statistic and McLeod-Li Statistic. Similarly, white noise tests were also
applied to verify whether there will be pattern existing in return are not. This will be test by
the above set Samess statistical test. In stage 2, descriptive statistics was computed along with
autocorrelation and partial autocorrelation function for the selected returns and this will
heuristically representation by using auto correlogram and partial auto correlogram. In order
to test stationary of selected stocks returns ADF (augmented dicky filler) test. In stage 3,
Treynor Ratio measures the risk-adjusted return of an investment portfolio, specifically
considering systematic risk (market risk) rather than total risk. It helps investors evaluate how
well a portfolio compensates for the risk taken, using beta as the risk measure and Jensen’s
Alpha measures the abnormal return of a portfolio compared to its expected return under the
CAPM framework. It evaluates the portfolio manager’s ability to outperform the market by
33
 picking undervalued assets. Finally, Regression Analysis To measure the relationship
between portfolio returns and market indices (NIFTY 50)

3.5 COMPANY SELECTIONS

The study examined the returns of various companies listed on the NSE, categorized
based on their respective industries. In the Real Industry Index, the selected companies
include DLF Ltd (DLF), Macrotech Developers Ltd (MACE), Godrej Properties Ltd
(GODR), and Phoenix Mills Ltd (PHOE). In the Consumer Goods Industry, the companies
considered are Hindustan Unilever Ltd (HLL), Nestlé India Ltd (NEST), Britannia Industries
Ltd (BRIT), and ITC Ltd (ITC). Similarly, in the Financial Services Industry, the study
focused on HDFC Bank Ltd (HDBK), Bajaj Finance Ltd (BJFN), State Bank of India (SBI),
and Axis Bank Ltd (AXBK). These companies were chosen based on their market
capitalization, liquidity, and overall sector performance to ensure a well-diversified portfolio
representation.

CHAPTER-Ⅳ
DATA ANALYSIS AND INFERENCES

TABLE 1
TEST OF NORMALITY FOR THE RETURN OF SELECTED COMPANIES

McLeod-Li
Box-Pierce Statistic Ljung-Box Statistic
Statistic
PORTFOLIO SECURITIES
p- p- p-
df value df value df value
value value value
DLF Ltd
6 7.965 0.241 6 8.448 0.207 6 0.9 0.989
(DLF)
Macrotech
6 4.443 0.617 6 4.691 0.584 6 2.915 0.819
devp (MACE)
Reality
Godrej
Industry Index
Properties Ltd 6 4.514 0.607 6 4.758 0.575 6 1.119 0.981
(GODR)
Phoenix Mills
6 1.483 0.961 6 1.566 0.955 6 4.238 0.645
Ltd (PHOE)
HDFC Bank
Financial 6 2.716 0.844 6 2.853 0.827 6 9.082 0.169
Ltd (HDBK)
Services
Bajaj Finance 6 1.27 0.973 6 1.339 0.969 6 11.066 0.086

34
 Ltd (BJFN)
State Bank Of
6 3.548 0.738 6 3.707 0.716 6 0.126 1
India (SBI)
Axis Bank Ltd
6 5.364 0.498 6 5.553 0.475 6 3.223 0.78
(AXBK)
Hindustan
Unilever Ltd 6 4.853 0.563 6 5.056 0.537 6 3.826 0.7
(HLL)
Nestle India
Consumer 6 12.148 0.059 6 12.769 0.047 6 4.929 0.553
Ltd (NEST)
Goods Britannia
Industries Ltd 6 2.37 0.883 6 2.464 0.873 6 3.161 0.788
(BRIT)
ITC Ltd (ITC) 6 11.303 0.079 6 11.878 0.065 6 4.089 0.665
(N=110) No. of, days
INFERENCE:
Table 1 visualize the result of test of normality for the returns of selected companies based on
Reality Industry Index, Financial services and Consumer Goods which are listed in NSE. The
result of Box-Pierce Statistic, Ljung-Box Statistic and McLeod-Li Statistic confirms. The
result of the companies are Normally distributed at 0.5% in sign level of 6 degree of freedom.
Hence, the returns of selected companies satisfied the normality assumptions and it will be
amendable to do further analysis

TABLE 2
WHITE NOISE TEST FOR SELECTED COMPANIES RETURN

Box-Pierce Statistic Ljung-Box Statistic McLeod-Li Statistic

SECURITIES p- p- p-
PORTFOLIO df value df value df value
value value value
DLF Ltd (DLF) 12 15.238 0.229 12 16.588 0.166 12 0.934 1
Macrotech devp
12 13.491 0.334 12 14.76 0.255 12 3.471 0.991
(MACE)
Reality Godrej
Industry Index Properties Ltd 12 10.096 0.608 12 10.973 0.531 12 1.505 1
(GODR)
Phoenix Mills
12 5.371 0.944 12 5.893 0.921 12 7.299 0.837
Ltd (PHOE)
HDFC Bank Ltd
12 12.578 0.4 12 13.807 0.313 12 11.808 0.461
(HDBK)
Bajaj Finance
Financial 12 7.919 0.791 12 8.788 0.721 12 12.837 0.381
Ltd (BJFN)
Services State Bank Of
12 4.911 0.961 12 5.211 0.951 12 0.159 1
India (SBI)
Axis Bank Ltd 12 10.031 0.613 12 10.744 0.551 12 3.836 0.986

35
 (AXBK)
Hindustan
Unilever Ltd 12 11.424 0.493 12 12.396 0.414 12 4.654 0.969
(HLL)
Nestle India Ltd
Consumer 12 15.88 0.197 12 16.922 0.153 12 11.215 0.511
(NEST)
Goods Britannia
Industries Ltd 12 12.27 0.424 12 13.561 0.33 12 5.717 0.93
(BRIT)
ITC Ltd (ITC) 12 16.668 0.163 12 17.906 0.119 12 4.994 0.958
(N=110) No. of, days

INFERENCE:
Table 2 describes the result of white noise test for the selected companies returns. White
noise refers to existence pattern or trend in the returns of the securities. The results confirms
with the help of box-pierce statistic, ljung-box statistic and mcleod-li statistic reveals there
will be no patterns or trends in the returns of selected companies at 5% sign level for 12
degree of freedom. Hence, there are no pattern, sequence, trends in the returns of the
securities under Reality Industry Index, Financial Services and Consumer Goods.

TABLE 3
DESCRIPTIVE STATISTICS

Std.
s.n Minimu Maximu
portfolio Name of securities Mean deviatio
o m m
n
844.16
DLF Ltd (DLF) 763 924 29.781
4
1312.9
Reality Macrotech devp (MACE) 1065.05 1594.8 139.248
1 6
Industry Index Godrej Properties Ltd
2583.95 3381.4 3016.1 169.688
(GODR)
Phoenix Mills Ltd 1740.9
1463.85 2047.65 130.271
(PHOE) 8
2 Consumer Hindustan Unilever Ltd 2684.2
2346.56 3016.54 157.788
Goods (HLL) 3
2508.3
Nestle India Ltd (NEST) 2246.2 2755.5 113.647
7
Britannia Industries Ltd 5167.8 6446.05 5785.9 267.042
(BRIT) 8

36
 ITC Ltd (ITC) 392.79 494.53 454.18 29.701
HDFC Bank Ltd (HDBK) 1483 1783 1661 58
Financial Bajaj Finance Ltd (BJFN) 6459 7768 7062 309
3
Services State Bank Of India (SBI) 769 906 823 30
Axis Bank Ltd (AXBK) 1126 1317 1202 50
24550.
4 NIFTY 50 (NSE) 21884.5 26216.1 751.297
4

INFERENCE:
TABLE 3 exhibits mean returns (expected returns) & std. Deviation (Risk), Minimum
returns. Under the REALITY INDUSTRY INDEX, the expected return is high for the Godrej
Properties Ltd (3016.1) followed by Phoenix Mills Ltd (1740.98) and Macrotech devp
(1312.96). Similarly, the risk will be very low for DLF Ltd (29.781) followed by Phoenix
Mills Ltd (130.271) and Macrotech devp (139.248). Under the CONSUMER GOODS, the
expected return is high for the Britannia Industries Ltd (5785.98) followed by Hindustan
Unilever Ltd (2684.23) and Nestle India Ltd (2508.37). Similarly, the risk will be very low
for ITC Ltd (29.701) followed by Nestle India Ltd (113.647) and Hindustan Unilever Ltd
(157.788). Under the FINANCIAL SERVICES, the expected return is high for the Bajaj
Finance Ltd (7062) followed by HDFC Bank Ltd (1661) and Axis Bank Ltd (1202).
Similarly, the risk will be very low for State Bank Of India (30) followed by Axis Bank Ltd
(50) and HDFC Bank Ltd (58).

TABLE 4
TEST OF AUTOCORRELATION FUNCTION AND PARTIAL
AUTOCORRELATION FUNCTION FOR REALITY INDUSTRY INDEX

DLF MACRO TECH DEVP GODREJ PROPERTIES PHOENIX MILLS

Lag
ACF PACF ACF PACF ACF PACF ACF PACF
0 1 1 1 1 1 1 1 1
1 -0.031 -0.031 0.118 0.118 0 0 0.012 0.012
2 -0.118 -0.119 -0.006 -0.02 -0.125 -0.125 -0.042 -0.042
3 -0.019 -0.027 -0.024 -0.021 -0.011 -0.011 -0.073 -0.072
4 -0.082 -0.099 0.027 0.033 0.073 0.058 0.044 0.044
5 -0.204 -0.222 -0.11 -0.119 -0.14 -0.146 -0.008 -0.015
6 0.094 0.052 -0.114 -0.089 0.01 0.028 0.065 0.064
7 -0.052 -0.114 -0.117 -0.098 -0.13 -0.17 -0.035 -0.032
8 -0.15 -0.179 -0.157 -0.15 -0.046 -0.051 -0.128 -0.127

37
 9 0.003 -0.079 -0.11 -0.087 -0.037 -0.06 -0.042 -0.032
10 0.079 -0.017 0.006 0.004 0.132 0.095 0.081 0.064
11 -0.15 -0.19 -0.134 -0.18 -0.037 -0.032 -0.061 -0.081
12 0.11 0.017 0.117 0.125 0.108 0.109 -0.074 -0.068
13 0.104 -0.001 0.128 0.054 0.028 0.016 -0.032 -0.023
14 0.016 0.017 0.146 0.07 0.027 0.01 -0.059 -0.069
15 0.024 0.012 0.053 0.023 0.015 0.053 0.123 0.123
16 0.105 0.048 0.032 -0.038 0.081 0.05 0.134 0.107
17 -0.072 0.007 -0.015 -0.045 -0.12 -0.059 0.062 0.065
18 0.005 0.05 -0.042 -0.038 0.037 0.067 -0.24 -0.207
19 -0.032 -0.042 -0.027 -0.014 -0.111 -0.111 -0.065 -0.08
20 -0.021 0.036 -0.113 -0.084 -0.075 -0.066 0.059 0.033
(ACF-AUTOCORRELATION FUNCTION)
(PACF-PARTIAL AUTOCORRELATION FUNCTION)

INFERENCE:
DLF Ltd
Table 4 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Reality Industry Index. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of DLF
Ltd. is positively correlated with returns of 6 years before, 12 years before 14 years before,
15 years before and so on. Similarly the PACF of the same companies return at present five
period is low positively correlated with 6 years before return, 12 years before, 14 years
before, 15 years before and so on. This shows the past time period having same impact on the
presents time period time returns of the security.

Macretech Developers Ltd

Table 4 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Reality Industry Index. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of
Macretech Developers Ltd. is positively correlated with returns of 1 years before, 4 years
before 10 years before, 12 years before and so on. Similarly the PACF of the same companies
return at present five period is low positively correlated with 1 years before return, 4 years
before, 10 years before, 12 years before and so on. This shows the past time period having
same impact on the presents time period time returns of the security.

Godrej Properties Ltd

Table 4 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Reality Industry Index. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of Godrej
Properties Ltd. is positively correlated with returns of 4 years before, 6 years before 10 years
before, 12 years before and so on. Similarly the PACF of the same companies return at
present five period is low positively correlated with 4 years before return, 6 years before, 10

38
years before, 12 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

Phoenix Mills Ltd

Table 4 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Reality Industry Index. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of Phoenix
Mills Ltd. is positively correlated with returns of 1 years before, 4 years before 6 years
before, 10 years before and so on. Similarly the PACF of the same companies return at
present five period is low positively correlated with 1 years before return, 4 years before, 6
years before, 10 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

39
 FIGURE 1: AUTOCORRELOGRAM (DLF)

Autocorrelogram (DLF)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1
Lag

FIGURE 2: PARTIAL AUTOCOTTELOGRAM (DLF)

Partial autocorrelogram (DLF)

1
0.8
0.6
0.4
Partial autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1
Lag

40
 FIGURE 3: AUTOCORRELOGRAM (MACE)

Autocorrelogram (MACE)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1
Lag

FIGURE 4: PARTIAL AUTOCOTTELOGRAM (MACE)

Partial autocorrelogram (MACE)

1
0.8
0.6
0.4
Partial autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1
Lag

41
 FIGURE 5: AUTOCORRELOGRAM (GODR)

Autocorrelogram (GODR)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1
Lag

FIGURE 6: PARTIAL AUTOCOTTELOGRAM (GODR)

Partial autocorrelogram (GODR)

1
0.8
0.6
0.4
Partial autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1
Lag

42
 FIGURE 7: AUTOCORRELOGRAM (PHOE)

Autocorrelogram (PHOE)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 8: PARTIAL AUTOCOTTELOGRAM (PHOE)

Partial autocorrelogram (PHOE)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

43
 TABLE 5
TEST OF AUTOCORRELATION FUNCTION AND PARTIAL
AUTOCORRELATION FUNCTION FOR FINANCIAL SRVICES

HDFC BANK BAJAJ FINANCE STATE BANK OF INDIA AXIS BANK

Lag
ACF PACF ACF PACF ACF PACF ACF PACF
0 1 1 1 1 1 1 1 1
1 -0.084 -0.084 -0.041 -0.041 -0.032 -0.032 -0.142 -0.142
2 -0.011 -0.018 -0.024 -0.026 -0.136 -0.137 0.143 0.125
3 -0.078 -0.082 -0.071 -0.073 -0.059 -0.07 -0.084 -0.051
4 0.073 0.06 0.012 0.006 -0.066 -0.092 -0.021 -0.057
5 0.022 0.031 -0.023 -0.027 -0.07 -0.099 0.017 0.026
6 0.075 0.077 -0.06 -0.068 0.005 -0.033 0.023 0.035
7 -0.107 -0.085 0.034 0.029 0.055 0.017 0.133 0.134
8 -0.118 -0.136 0.047 0.043 0.039 0.021 -0.011 0.017
9 0.123 0.11 0.171 0.17 -0.088 -0.091 -0.051 -0.084
10 -0.22 -0.242 0.037 0.063 -0.002 -0.007 -0.004 -0.002
11 -0.024 -0.066 -0.121 -0.108 -0.003 -0.023 -0.14 -0.122
12 -0.019 0.002 0.109 0.127 -0.015 -0.021 0.049 0.003
13 0.003 -0.036 -0.024 -0.01 0.033 0.019 -0.06 -0.035
14 -0.181 -0.175 -0.028 -0.031 -0.01 -0.031 -0.114 -0.18
15 0.011 -0.047 -0.007 0.03 -0.003 -0.006 -0.108 -0.147
16 -0.076 -0.05 -0.05 -0.079 -0.027 -0.031 0.005 0.027
17 0.069 0.011 0.047 0.014 -0.009 -0.011 0.066 0.103
18 -0.005 -0.073 -0.147 -0.173 0.055 0.04 -0.029 -0.002
19 -0.024 0.01 0.1 0.067 0.026 0.024 0.019 -0.017
20 -0.034 -0.055 -0.057 -0.031 -0.059 -0.054 -0.023 0.005
(ACF-AUTOCORRELATION FUNCTION)
(PACF-PARTIAL AUTOCORRELATION FUNCTION)

INFERENCE:

HDFC Bank Ltd

Table 5 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Financial Services. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of HDFC
Bank Ltd. is positively correlated with returns of 4 years before, 5 years before 6 years
before, 9 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 4 years before return, 5 years before, 6
years before, 9 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.
Bajaj Finance Ltd

44
Table 5 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Financial Services. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of Bajaj
Finance Ltd. is positively correlated with returns of 4 years before, 7 years before 8 years
before, 9 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 4 years before return, 7 years before, 8
years before, 9 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

State Bank of India

Table 5 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Financial Services. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of State
Bank of India. is positively correlated with returns of 7 years before, 8 years before 13 years
before, 18 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 7 years before return, 8 years before, 13
years before, 18 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

Axis Bank Ltd

Table 5 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Financial Services. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of Axis
Bank Ltd. is positively correlated with returns of 2 years before, 5 years before 6 years
before, 7 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 2 years before return, 5 years before, 6
years before, 7 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

FIGURE 9: AUTOCORRELOGRAM (HDBK)

45
 Autocorrelogram (HDBK)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 10: PARTIAL AUTOCOTTELOGRAM (HDBK)

Partial autocorrelogram (HDBK)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

46
 FIGURE 11: AUTOCORRELOGRAM (BJFN)

Autocorrelogram (BJFN)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 12: PARTIAL AUTOCOTTELOGRAM (BJFN)

Partial autocorrelogram (BJFN)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

47
 FIGURE 13: AUTOCORRELOGRAM (SBI)

Autocorrelogram (SBI)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 14: PARTIAL AUTOCOTTELOGRAM (SBI)

Partial autocorrelogram (SBI)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

48
 FIGURE 15: AUTOCORRELOGRAM (AXBK)

Autocorrelogram (AXBK)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 16: PARTIAL AUTOCOTTELOGRAM (AXBK)

Partial autocorrelogram (AXBK)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

49
 TABLE 6
TEST OF AUTOCORRELATION FUNCTION AND PARTIAL
AUTOCORRELATION FUNCTION FOR CONSUMER GOODS

HINDUSTAN UNILIVER NESTLE INDIA BRITANNIA ITC

Lag
ACF PACF ACF PACF ACF PACF ACF PACF
0 1 1 1 1 1 1 1 1
1 0.091 0.091 0.118 0.118 0.113 0.113 -0.145 -0.145
2 -0.08 -0.089 0.067 0.054 -0.003 -0.016 0.005 -0.016
3 0.171 0.19 0.195 0.184 0.006 0.008 0.162 0.164
4 -0.004 -0.052 0.201 0.165 -0.092 -0.095 -0.172 -0.131
5 0.009 0.052 -0.045 -0.103 0.007 0.029 0.154 0.12
6 -0.014 -0.063 0.108 0.077 -0.01 -0.016 0.047 0.061
7 0.077 0.11 0.087 0.013 0.156 0.165 0.014 0.076
8 -0.081 -0.134 -0.081 -0.115 0.013 -0.036 -0.059 -0.121
9 -0.056 0.012 0.035 0.053 0.012 0.024 0.01 0.015
10 0.189 0.143 0.059 0.004 0.156 0.147 0.165 0.169
11 0.009 0.005 -0.123 -0.119 0.072 0.073 0.117 0.201
12 -0.092 -0.069 -0.004 0.049 -0.19 -0.229 -0.065 -0.093
13 0.121 0.104 0.06 0.021 0.064 0.136 -0.008 -0.068
14 0.058 0.013 -0.029 0.003 -0.112 -0.161 -0.003 0.006
15 0.015 0.061 -0.113 -0.07 -0.108 -0.058 -0.076 -0.045
16 0.038 -0.003 -0.04 -0.087 0.032 0.009 0.054 -0.061
17 0.01 -0.016 0.01 0.051 -0.031 -0.055 0.074 0.069
18 -0.134 -0.147 -0.173 -0.139 -0.084 -0.164 -0.186 -0.122
19 -0.095 -0.032 -0.124 -0.097 -0.093 0.024 0.016 -0.023
20 0.071 0.008 -0.012 0.047 0.014 -0.052 0.03 -0.027
(ACF-AUTOCORRELATION FUNCTION)
(PACF-PARTIAL AUTOCORRELATION FUNCTION)

INFERENCE:
Hindustan Unilever Ltd
Table 6 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Consumer Goods. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of
Hindustan Unilever Ltd. is positively correlated with returns of 1 years before, 3 years before
5 years before, 7 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 1 years before return, 3 years before, 5
years before, 7 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

Nestle India Ltd

50
Table 6 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Consumer Goods. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of Nestle
India Ltd. is positively correlated with returns of 1 years before, 2 years before 3 years
before, 4 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 1 years before return, 2 years before, 3
years before, 4 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

Britannia Industries Ltd

Table 6 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Consumer Goods. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of
Britannia Industries Ltd. is positively correlated with returns of 1 years before, 3 years before
5 years before, 7 years before and so on. Similarly, the PACF of the same companies return at
present five period is low positively correlated with 1 years before return, 3 years before, 5
years before, 7 years before and so on. This shows the past time period having same impact
on the presents time period time returns of the security.

ITC Ltd
Table 6 shows the results of the Autocorrelation Function & Partial Autocorrelation of
selected security returns which comes under Consumer Goods. The ACF & PACF are
computed for 20 lags and the results were exhibited. The results of present returns of ITC
Ltd. is positively correlated with returns of 3 years before, 5 years before 6 years before, 7
years before and so on. Similarly, the PACF of the same companies return at present five
period is low positively correlated with 3 years before return, 5 years before, 6 years before, 7
years before and so on. This shows the past time period having same impact on the presents
time period time returns of the security.

FIGURE 17: AUTOCORRELOGRAM (HLL)

51
 Autocorrelogram (HLL)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 18: PARTIAL AUTOCOTTELOGRAM (HLL)

Partial autocorrelogram (HLL)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

52
 FIGURE 19: AUTOCORRELOGRAM (NEST)

Autocorrelogram (NEST)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 20: PARTIAL AUTOCOTTELOGRAM (NEST)

Partial autocorrelogram (NEST)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

53
 FIGURE 21: AUTOCORRELOGRAM (BRIT)

Autocorrelogram (BRIT)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 22: PARTIAL AUTOCOTTELOGRAM (BRIT)

Partial autocorrelogram (BRIT)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

54
 FIGURE 23: AUTOCORRELOGRAM (ITC)

Autocorrelogram (ITC)
1
0.8
0.6
0.4
Autocorrelation

0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

FIGURE 24: PARTIAL AUTOCOTTELOGRAM (ITC)

Partial autocorrelogram (ITC)

1
0.8
0.6
Partial autocorrelation

0.4
0.2
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-0.2
-0.4
-0.6
-0.8
-1

Lag

55
 TABLE 7
TEST OF STATIONARITY
Tau Tau
Company p-value (one-
S No PORTFOLIO (Observed (Critical
Name tailed)
Value) Value)
DLF Ltd (DLF) -3.028 -3.415 0.120

Macrotech devp
-3.317 -3.415 0.062
(MAE)
Reality Industry
1
Index Godrej
Properties Ltd -2.761 -3.415 0.203
(GODR)
Phoenix Mills
-2.997 -3.415 0.129
Ltd (PHOE)
HDFC Bank Ltd
-2.944 -3.415 0.143
(HDBK)
Bajaj Finance
-1.707 -3.415 0.731
Financial Ltd (BJFN)
2
Services State Bank of
-1.860 -3.415 0.658
India (SBI)
Axis Bank Ltd
-2.338 -3.145 0.398
(AXBK)
Hindustan
Unilever Ltd -0.289 -3.145 0.985
(HLL)
Nestle India
-2.272 -.3145 0.432
Consumer (NEST)
3
Goods Britannia
Industries Ltd -1.102 -3.145 0.909
(BRIT)
IT Ltd (ITC) -0.315 -3.145 0.984

INFERENCE:
TABLE 7 shows the result of test of STATIONARITY based on ADF. Test for the returns of
Reality Industry Index, Financial Services and Consumer Goods. Since the p-value of ADF.
Test is Statistically insignificant at 5% level and this confirms there will be a random walk
existing in the returns of Reality Industry Index, Financial Services and Consumer Goods.

56
 TABLE 8
TREYNOR RATIO OF REALITY INDUSTRY INDEX

Treynor Ratio

Portfolio NSE Nifty 50 Risk free rate

Average raw return 0.001553 -0.03% 1.60%

Average Excess return -0.01445 -0.00029

Beta 1.50014 0 0.00%

Treynor Ratio -0.00963

INFERENCE:
Table 8 visualizes the results of Treynor Ratio for the portfolio. The result reveals that the
portfolio's average raw return is 0.1553%, indicating a slight positive return over the period
analyzed. The NSE Nifty 50 average raw return is -0.03%, which suggests that the
benchmark index also experienced a decline. The average excess return for the portfolio is -
1.445%, refers that the portfolio underperformed relative to the risk-free rate. A negative
Treynor Ratio (-0.00963) indicates that the portfolio did not generate a sufficient return per
unit of risk. However, the Beta (1.50014) suggests that the portfolio is highly sensitive to
market movements, reacting more aggressively to market fluctuations.

57
 TABLE 9
JENSEN’S ALPHA OF REALITY INDUSTRY INDEX

Jensen's Alpha

Portfolio RI NSE Risk free rate

Average 0.16% -0.03% 1.60%

Alpha -1.40% 0.00% 0.00%

Beta 150.01% 0.00% 0.00%

INFERENCE:
Table 9 visualizes the results of Jensen’s alpha for the portfolio. The result reveals that the
portfolio's average return is 0.16%, which is higher than the NSE's return of -0.03%.
However, Jensen’s Alpha (-1.40%) indicates that the portfolio underperformed compared to
the expected return based on its Beta. A negative Jensen’s Alpha suggests that the portfolio
did not generate excess returns above what was expected based on its risk exposure. The high
Beta (150.01%) suggests that the portfolio is highly volatile and reacts significantly to market
movements, indicating a higher level of systematic risk.

58
 TABLE 10
THE EFFECT OF NIFTY 50 INDEX ON REALITY INDUSTRY INDEX

ANOVA
df SS MS F Significance F
Regression 1 0.024683 0.024683 134.1995 0.000
Residual 108 0.019864 0.000184
Total 109 0.044547

TABLE 11
MODEL PARAMETER OF REALITY INDUSTRY INDEX

Coeffic Standard P- Lower Upper Lower Upper

t Stat
ients Error value 95% 95% 95.0% 95.0%
- - - -
0.000 - -
Intercept 0.0140 0.001294 10.83 0.0165 0.0114
0 0.01658 0.01145
1 2 8 5
Nifty 50 1.5001 11.58 1.17E 1.2434 1.7568 1.24345 1.75682
0.129496
Index (X) 4 445 -20 56 23 6 3
R Square 0.554087
(Dependent Variable: Reality Industry Index)

INFERENCE:
Table 10 & 11 exhibit the result of the simple regression analysis which explain the effect of
Nifty 50 Index on Reality Industry Index. The result conforms that the Nifty 50 Index
explains 55.40% variation in the Reality industry Index and F Test reveals that the effect
explains by Nifty 50 Index changes by 1 unit the Reality Industry Index will Increases by
1.50014 unit. The computed regression co-efficient are statistically significant at 1% level
based on the T statistic Finally the Nifty 50 Index positively significant.

59
 TABLE 12
TREYNOR RATIO OF FINANCIAL SERVICES

Treynor Ratio

Portfolio NSE Nifty 50 Risk free rate

Average raw return 0.000188 -0.03% 1.60%

Average Excess return -0.01581 0.015522

Beta 1.190981

Treynor Ratio -0.01328

INFERENCE:
Table 12 visualizes the results of Treynor Ratio for the portfolio. The result reveals that the
portfolio's average raw return is 0.0188%, indicating a slight positive return over the period
analyzed. The NSE Nifty 50 average raw return is -0.03%, which suggests that the
benchmark index also experienced a decline. The average excess return for the portfolio is -
1.581%, refers that the portfolio underperformed relative to the risk-free rate. A negative
Treynor Ratio (-0.01328) indicates that the portfolio did not generate a sufficient return per
unit of risk. However, the Beta (1.190981) suggests that the portfolio is moderately sensitive
to market movements, reacting more aggressively to market fluctuations.

60
 TABLE 13
JENSEN’S ALPHA OF FINANCIAL SERVICES

Jensen's Alpha

Portfolio RI NSE Risk free rate

Average 0.02% -0.03% 1.60%

Alpha 0.05% 0.00% 0.00%

Beta 119.10%

INFERENCE:
Table 13 visualizes the results of Jensen’s alpha for the portfolio. The result reveals that the
portfolio's average return is 0.02%, which is slightly higher than the NSE's return of -0.03%.
Jensen’s Alpha (0.05%) indicates that the portfolio slightly outperformed the expected return
based on its Beta. A positive Jensen’s Alpha suggests that the portfolio generated a small
excess return above what was expected given its risk exposure. The high Beta (119.10%)
implies that the portfolio is highly sensitive to market movements, indicating a greater level
of systematic risk.

61
 TABLE 14
THE EFFECT OF NIFTY 50 INDEX ON FINANCIAL SERVICES

ANOVA

df SS MS F Significance F

Regression 1 0.015557 0.015557 344.0456 0.000

Residual 108 0.004884 0.000

Total 109 0.020441

TABLE 15
MODEL PARAMETER OF FINANCIAL SERVICES

Coeffici Standard P- Lower Lower Upper

t Stat
ents Error value 95% 95.0% 95.0%
0.00053 0.8310 0.4077 -
Intercept 0.000641 -0.00074 0.001804
3 65 71 0.00074
Nifty 50 1.19098 18.548 1.06370
0.064209 0.000 1.063707 1.318255
Index (X) 1 47 7

R Square 0.761086

(Dependent Variable: Financial Services)

INFERENCE:
Table 14 & 15 exhibit the result of the simple regression analysis which explain the effect of
Nifty 50 Index on Financial Services. The result conforms that the Nifty 50 Index explains
76.11% variation in the Financial Services and F Test reveals that the effect explains by Nifty
50 Index changes by 1 unit the Financial Services will Increases by 1.190981 unit. The
computed regression co-efficient are statistically significant at 1% level based on the T
statistic Finally the Nifty 50 Index positively significant.

62
 TABLE 16
TREYNOR RATIO OF CONSUMER GOODS

Treynor Ratio

Portfolio NSE Nifty 50 Risk free rate

Average raw return -0.0005 -0.03% 1.60%

Average Excess return -0.0165 0.016209 1.60%

Beta 0.254472

Treynor Ratio -0.06484

INFERENCE:
Table 16 visualizes the results of Treynor Ratio for the portfolio. The result reveals that the
portfolio's average raw return is -0.05%, indicating a negative return over the period
analyzed. The NSE Nifty 50 average raw return is -0.03%, which suggests that the
benchmark index also experienced a decline. The average excess return for the portfolio is -
1.65%, refers that the portfolio underperformed relative to the risk-free rate. A negative
Treynor Ratio (-0.06484) indicates that the portfolio did not generate a sufficient return per
unit of risk. However, the Beta (0.254472) suggests that the portfolio has low sensitivity to
market movements, reacting less aggressively to market fluctuations.

63
 TABLE 17
JENSEN’S ALPHA OF CONSUMER GOODS

Jensen's Alpha

Portfolio RI NSE Risk free rate

Average -0.05% -0.03% 1.60%

Alpha -0.04% 0.00% 0.00%

Beta 25.45%

INFERENCE:
Table 17 visualizes the results of Jensen’s alpha for the portfolio. The result reveals that the
portfolio's average return is -0.05%, which is lower than the NSE's return of -0.03%. Jensen’s
Alpha (-0.04%) indicates that the portfolio underperformed compared to the expected return
based on its Beta. A negative Jensen’s Alpha suggests that the portfolio did not generate
excess returns above what was expected given its risk exposure. The relatively low Beta
(25.45%) suggests that the portfolio has low sensitivity to market movements, indicating
lower systematic risk.

64
 TABLE 18
THE EFFECT OF NIFTY 50 INDEX ON CONSUMER GOODS

ANOVA
df SS MS F Significance F

Regression 1 0.00071 0.00071 8.338651 0.004689

Residual 108 0.009199 0.000

Total 109 0.009909

TABLE 19
MODEL PARAMETER OF CONSUMER GOODS

Coeffic Standard P- Lower Upper Lower Upper

t Stat
ients Error value 95% 95% 95.0% 95.0%
- -
- 0.630 0.0013 -
Intercept 0.0004 0.00088 0.0021 0.00132
0.483 07 2 0.00217
3 7
Nifty 50 0.2544 2.887 0.004 0.0797 0.4291 0.07979 0.42914
0.088124
Index (X) 72 672 689 96 48 6 8
R Square 0.071676
(Dependent Variable: Consumer Goods)

INFERENCE:
Table 18 & 19 exhibit the result of the simple regression analysis which explain the effect of
Nifty 50 Index on Consumer Goods. The result conforms that the Nifty 50 Index explains
71.67% variation in the Consumer Goods and F Test reveals that the effect explains by Nifty
50 Index changes by 1 unit the Consumer Goods will Increases by 0.254472 unit. The
computed regression co-efficient are statistically significant at 1% level based on the T
statistic Finally the Nifty 50 Index positively significant.

65
 CHAPTER-Ⅴ
FINDINGS AND SUGGESTIONS

5.1 FINDINGS

 The Normality test results for the returns of selected companies from the Reality
Industry Index, Financial Services, and Consumer Goods sectors listed on the NSE
confirm their normal distribution. The Box-Pierce Statistic, Ljung-Box Statistic, and
McLeod-Li Statistic support this conclusion at a 0.5% significance level with 6 degrees
of freedom. Therefore, the returns of these companies meet the normality assumption,
making them suitable for further analysis.

 The White Noise test results for the returns of selected companies indicate the absence
of patterns or trends in their returns. White noise refers to the presence of any
discernible pattern or trend in security returns. The findings, supported by the Box-
Pierce Statistic, Ljung-Box Statistic, and McLeod-Li Statistic, confirm that there are no
patterns or trends at a 5% significance level with 12 degrees of freedom. Therefore, the
returns of companies under the Reality Industry Index, Financial Services, and
Consumer Goods sectors exhibit no discernible sequence, pattern, or trend

 Descriptive Statistics reveal the mean returns (expected returns), standard deviation
(risk), and minimum returns. Within the Reality Industry Index, Godrej Properties Ltd
has the highest expected return at 3016.1, followed by Phoenix Mills Ltd at 1740.98 and
Macrotech Developers at 1312.96, while the lowest risk is observed for DLF Ltd at
29.781, followed by Phoenix Mills Ltd at 130.271 and Macrotech Developers at
139.248. In the Consumer Goods sector, Britannia Industries Ltd records the highest
expected return at 5785.98, followed by Hindustan Unilever Ltd at 2684.23 and Nestle
India Ltd at 2508.37, with the lowest risk associated with ITC Ltd at 29.701, followed
by Nestle India Ltd at 113.647 and Hindustan Unilever Ltd at 157.788. For the Financial
Services sector, Bajaj Finance Ltd has the highest expected return at 7062, followed by
HDFC Bank Ltd at 1661 and Axis Bank Ltd at 1202, while the lowest risk is seen in the
State Bank of India at 30, followed by Axis Bank Ltd at 50 and HDFC Bank Ltd at 58.

66
 The analysis of the Autocorrelation Function (ACF) and Partial Autocorrelation
Function (PACF) for DLF Ltd. indicates that the company’s current returns are
positively correlated with returns from 6, 12, 14, and 15 years ago, among other time
periods. Similarly, the PACF results show a low positive correlation between present
returns and those from the same historical periods. This suggests that past returns
continue to influence the company's current performance.

 The ACF and PACF analysis for Macretech Developers Ltd. reveals that the company's
present returns have a positive correlation with returns from 1, 4, 10, and 12 years ago.
Likewise, the PACF shows a low positive correlation between present returns and those
from the same past periods. This indicates that historical returns continue to impact the
company's current performance.

 The ACF and PACF results for Godrej Properties Ltd. show that the company’s current
returns are positively correlated with returns from 4, 6, 10, and 12 years ago. Similarly,
the PACF indicates a low positive correlation between present returns and those from
the same past periods. This suggests that historical returns still influence the company's
current returns.

 The ACF and PACF analysis for Phoenix Mills Ltd. highlights that present returns are
positively correlated with returns from 1, 4, 6, and 10 years ago. The PACF also reflects
a low positive correlation between current returns and those from the same past periods.
This implies that historical returns continue to play a role in shaping the company’s
present performance.

 The analysis of the Autocorrelation Function (ACF) and Partial Autocorrelation

Function (PACF) for HDFC Bank Ltd. indicates that the company’s present returns are
positively correlated with returns from 4, 5, 6, and 9 years ago, among other time
periods. Similarly, the PACF results show a low positive correlation between present
returns and those from the same historical periods. This suggests that past returns
continue to influence the company's current performance.

67
 The ACF and PACF analysis for Bajaj Finance Ltd. reveals that the company's present
returns have a positive correlation with returns from 4, 7, 8, and 9 years ago. Likewise,
the PACF shows a low positive correlation between present returns and those from the
same past periods. This indicates that historical returns still impact the company's
current performance.

 The ACF and PACF results for State Bank of India show that the company’s present
returns are positively correlated with returns from 7, 8, 13, and 18 years ago. Similarly,
the PACF indicates a low positive correlation between present returns and those from
the same past periods. This suggests that historical trends continue to influence the
company's current returns.

 The ACF and PACF analysis for Axis Bank Ltd. highlights that present returns are
positively correlated with returns from 2, 5, 6, and 7 years ago. The PACF also reflects a
low positive correlation between current returns and those from the same past periods.
This implies that historical returns continue to play a role in shaping the company’s
present performance

 The analysis of the Autocorrelation Function (ACF) and Partial Autocorrelation

Function (PACF) for Hindustan Unilever Ltd. indicates that the company's present
returns are positively correlated with returns from 1, 3, 5, and 7 years ago, among other
periods. Similarly, the PACF results show a low positive correlation between present
returns and those from the same past periods. This suggests that historical returns
continue to influence the company’s current performance.

 The ACF and PACF analysis for Nestle India Ltd. reveals that the company's present
returns are positively correlated with returns from 1, 2, 3, and 4 years ago. Likewise, the
PACF shows a low positive correlation between present returns and those from the same
past periods. This indicates that past returns still play a role in shaping the company’s
current returns.

 The ACF and PACF results for Britannia Industries Ltd. show that the company's
present returns are positively correlated with returns from 1, 3, 5, and 7 years ago.

68
 Similarly, the PACF indicates a low positive correlation between present returns and
those from the same past periods. This suggests that past performance continues to
impact the company’s current returns.

 The ACF and PACF analysis for ITC Ltd. highlights that present returns are positively
correlated with returns from 3, 5, 6, and 7 years ago. The PACF also reflects a low
positive correlation between current returns and those from the same past periods. This
implies that historical trends continue to influence the company’s present performance.

 The Augmented Dickey-Fuller (ADF) test results for the returns of the Real Estate
Industry Index, Financial Services, and Consumer Goods show a p-value that is
statistically insignificant at the 5% level. This indicates that the returns for these sectors
exhibit a random walk.

 The Treynor Ratio results for the Reality Industry Index show an average raw return of
0.1553%, indicating a modest positive return over the analyzed period. In comparison,
the NSE Nifty 50's average raw return is -0.03%, pointing to a decline in the benchmark
index as well. The portfolio's average excess return is -1.445%, signifying
underperformance relative to the risk-free rate. A negative Treynor Ratio of -0.00963
suggests that the portfolio did not generate adequate returns for the level of risk taken.
However, the Beta of 1.50014 indicates that the portfolio is highly responsive to market
movements, reacting more strongly to fluctuations in the market.

 The Jensen’s Alpha results for the Reality Industry Index show an average return of
0.16%, which is higher than the NSE's return of -0.03%. However, the negative Jensen’s
Alpha of -1.40% indicates that the portfolio underperformed relative to the expected
return based on its Beta. This negative value suggests that the portfolio failed to
generate returns above what was anticipated given its level of risk exposure. The high
Beta of 150.01% implies that the portfolio is highly volatile and responds significantly
to market fluctuations, pointing to a greater level of systematic risk

69
 The Simple Regression analysis results examining the impact of the Nifty 50 Index on
the Real Estate Industry Index show that the Nifty 50 Index explains 55.40% of the
variation in the Real Estate Industry Index. The F-test indicates that for every 1-unit
change in the Nifty 50 Index, the Real Estate Industry Index will increase by 1.50014
units. The computed regression coefficients are statistically significant at the 1% level
based on the t-statistic. Overall, the Nifty 50 Index has a positive and significant effect
on the Real Estate Industry Index.

 The Treynor Ratio results for the Financial Services show an average raw return of
0.0188%, indicating a slight positive return over the analyzed period. In comparison, the
NSE Nifty 50's average raw return is -0.03%, suggesting a decline in the benchmark
index as well. The portfolio's average excess return is -1.581%, indicating
underperformance relative to the risk-free rate. A negative Treynor Ratio of -0.01328
suggests that the portfolio did not generate sufficient returns for the level of risk taken.
However, the Beta of 1.190981 indicates that the portfolio is moderately sensitive to
market movements, reacting more strongly to market fluctuations.

 The Jensen’s Alpha results for the Financial Services show an average return of 0.02%,
which is slightly higher than the NSE's return of -0.03%. The Jensen’s Alpha of 0.05%
indicates that the portfolio slightly outperformed the expected return based on its Beta.
This positive value suggests that the portfolio generated a small excess return above
what was anticipated given its risk exposure. The high Beta of 119.10% implies that the
portfolio is highly sensitive to market movements, signifying a higher level of
systematic risk.

 The Simple Regression analysis results examining the impact of the Nifty 50 Index on
Financial Services show that the Nifty 50 Index explains 76.11% of the variation in the
Financial Services sector. The F-test indicates that for every 1-unit change in the Nifty
50 Index, the Financial Services sector will increase by 1.190981 units. The computed
regression coefficients are statistically significant at the 1% level based on the t-statistic.
Overall, the Nifty 50 Index has a positive and significant effect on the Financial
Services sector.

70
 The Treynor Ratio results for the Consumer Goods show an average raw return of -
0.05%, indicating a negative return over the analyzed period. In comparison, the NSE
Nifty 50's average raw return is -0.03%, suggesting that the benchmark index also
experienced a decline. The portfolio's average excess return is -1.65%, indicating
underperformance relative to the risk-free rate. A negative Treynor Ratio of -0.06484
suggests that the portfolio did not generate sufficient returns for the level of risk taken.
However, the Beta of 0.254472 indicates that the portfolio has low sensitivity to market
movements, reacting less aggressively to market fluctuations.

 The Jensen’s Alpha results for the Consumer Goods show an average return of -0.05%,
which is lower than the NSE's return of -0.03%. The Jensen’s Alpha of -0.04% indicates
that the portfolio underperformed compared to the expected return based on its Beta.
This negative value suggests that the portfolio did not generate excess returns above
what was anticipated given its risk exposure. The relatively low Beta of 25.45%
indicates that the portfolio has low sensitivity to market movements, signifying lower
systematic risk.

 The simple regression analysis results examining the impact of the Nifty 50 Index on
Consumer Goods show that the Nifty 50 Index explains 71.67% of the variation in the
Consumer Goods sector. The F-test indicates that for every 1-unit change in the Nifty 50
Index, the Consumer Goods sector will increase by 0.254472 units. The computed
regression coefficients are statistically significant at the 1% level based on the t-statistic.
Overall, the Nifty 50 Index has a positive and significant effect on the Consumer Goods
sector.

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5.2 SUGGESTIONS
 This findings indicate with varying returns and risks across different companies, it's
essential to diversify the portfolio. Combining high-return companies with lower-risk
ones from different sectors like Reality Industry, Consumer Goods, and Financial
Services could provide a more balanced risk-reward outcome.

 To minimize risk companies like DLF Ltd and ITC Ltd show low risk. Incorporating
more of such assets into the portfolio could help reduce volatility and provide stability,
particularly during periods of market fluctuations.

 Improving a fine-tuning asset allocation to balance growth and stability. By allocating a

portion to growth-oriented stocks like Bajaj Finance Ltd and Britannia Industries Ltd,
while maintaining stability with low-risk assets, the portfolio can achieve optimal risk-
adjusted returns.

 Focus on sustainable growth companies with strong sustainability practices and long-
term growth prospects. These companies, such as Nestle India Ltd, offer a blend of
stability and growth potential, especially as sustainability becomes an increasing driver
of investor value.

 Optimizing beta by the help of this analysis because some stocks showing high Beta, the
portfolio can be optimized by adjusting exposure to more stable, low-Beta assets. This
will enhance portfolio stability while still capturing growth potential.

 This analysis shows Capitalize on Sector Correlations that the Nifty 50 Index has a
strong correlation with returns in the selected sectors. Leveraging this relationship can
provide a more informed and systematic approach to portfolio management.

 From this study can help to provide a long-term Investment approach for high
autocorrelation stocks like HDFC Bank Ltd, Bajaj Finance Ltd, and Britannia Industries
Ltd exhibit positive autocorrelation, Investors may benefit from holding their stock for
the long-term rather than engaging in frequent trading

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5.3 CONCLUSION
Portfolio Diversification is a crucial strategic approach to optimizing risk-adjusted
returns by balancing high-growth, high-risk stocks with stable, low-risk assets across sectors
such as Reality Industry, Financial Services, and Consumer Goods sectors. The research
highlights that while certain companies, like Bajaj Finance Ltd and Britannia Industries Ltd,
offer higher return potential others such as DLF Ltd and ITC Ltd, provide Stability with
lower volatility. By strategically balancing these assets, investors can achieve a more resilient
portfolio that mitigates market fluctuations. The analysis of beta values suggests that
incorporating low-beta stocks can enhance portfolio stability, while high-beta stocks capture
growth potential. Additionally, the strong correlation between sectoral indices and the Nifty
50 Index suggests that investors can make more informed decisions by analyzing broader
market trends. Companies exhibiting return persistence, like HDFC Bank Ltd and Britannia
Industries Ltd, may benefit from long-term holding strategies rather than frequent trading. By
leveraging insights from normality test, white noise test, descriptive statistics, autocorrelation
and partial autocorrelation analysis, Augmented Dickey-Fuller test, Treynor Ratio, Jensen’s
Alpha, and regression analysis, investors can create a well-structured portfolio that minimizes
risks while maximizing long-term growth potential.

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