Published Online:September 2024
Product Name:The IUP Journal of Financial Risk Management
Product Type:Article
Product Code:IJFRM010924
Author Name:S Baranidharan and Amirdha Vasani Sankarkumar
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:5-24
This study conducts an in-depth risk analysis of a diversified equity portfolio comprising major Indian companies across sectors, specifically Maruti Suzuki, Reliance Industries, Godrej Industries, State Bank of India (SBI), UltraTech Cement, Dabur, Kirloskar Brothers Ltd., and ITC. Employing value-at-risk (VaR) and conditional value-at-risk (CVaR) as quantitative risk assessment tools, the study evaluates each stock’s risk contribution to the portfolio, using historical price data analyzed through Excel’s risk modeling functions. VaR, calculated at a 95% confidence level, quantifies the maximum expected loss, while CVaR provides insight into average losses exceeding the VaR threshold, thereby capturing tail risk exposure. The results indicate significant variance in risk exposure among individual stocks, with Reliance and SBI contributing notably higher risk levels due to sector-specific volatility. In contrast, consumer goods stocks like Dabur and ITC offer stabilizing effects on portfolio risk. The study underscores the importance of integrating CVaR for enhanced portfolio risk assessment in volatile markets and supports targeted diversification strategies for optimized riskreturn tradeoffs in the Indian equity market.
Value-at-risk (VaR) and conditional value-at-risk (CVaR) are widely recognized as essential measures for quantifying and managing financial risk within portfolio management. VaR, as a statistical technique, measures the maximum potential loss over a specified time frame and confidence level, providing a baseline for understanding risk exposure (Krokhmal et al., 2001; and Giot and Laurent, 2003).