INTRODUCTION

• The Modern Portfolio theory used widely to

analyze the risk of a portfolio is largely based
on covariance analysis.


• It takes only previous values of the share into

account.
•
• The risk analysis can be done in a holistic way
considering fundamental and technical
aspects of the stock in addition to covariance
analysis.


• In our approach, the risk analysis is done

combining all the three aspects.
 PROBLEM STATEMENT
 The existing risk analysis
techniques proposed by Modern
Portfolio Theory do not capture the
holistic risk of a stock.


 We aim to develop a procedure for

analyzing the risk associated with a
portfolio at any given time so that it can
be managed in an effective way. This
takes into account the covariance of the
shares as well as the technical and
fundamental factors for analysis.
 OBJECTIVE
• The objective is to find the association
between time series data.
• The time series data will the stock value
taken for last 30 days.
• Thus we give the stock values of the given
portfolio as input and get the association
values among them as output.
• Then we perform grouping and thus
decision making of the category of
portfolio(low risk, medium risk or high
risk) according to the association values.
• This is extended to Mutual Funds(MF).
 Fig 1 : ALGORITHM FOR FINDING ASSOCIATION AND
GROUPING
INPUT OF N STOCKS
SET VARIABLE J=1

FIND MOVING APPROXIMATION(MAP) FOR ALL STOCKS

FIND THE TREND ASSOCIATION VALUE AND THE ASSOCIATION FUNCTION(AF)

OF STOCK J WITH REMAINING J+1 TO N STOCKS

FIND THE MEASURE OF ASSOCIATION(AM) USING THE ASSOCIATION FUNCTION

K=K+1 K<N

THE STONGLY ASSOCIATED STOCKS ARE GROUPED TOGETHER

BASED ON THE GROUPING, THE RISK OF THE PORTFOLIO IS FOUND

MOVING APPROXIMATION TRANSFORMATION


• A window of size k (>1 and <=N) is taken in the time series data and
transformed into slope values.
• This transformation of the time series values into the slope values is
called Moving Approximation Transformation.
• It is based on Least Squares Approximation that uses a function fi =
ait + bi to fit the data points into a line.
 The values of ai, ib
+ ki −can
1 be found as,

∑ (t − t i ) ( y j − yi )
bi =yi −ai ti
j
j=i
ai =


 i + k −1 2

 ∑ (t
j=i
j − ti )


1 i + k-1 1 i + k-1
whereti = ∑ t j , yi = ∑ y j



k j =i k j =i


 i - the starting value for the window of length k



 The set of a values gives the Moving Approximation

Transformation(MAT) for the given window of length ‘k’.
Fig 2 : E xa m p le fo r M A T w ith w in d o w le n g th k = 6
 Thus after the MAT we get a set
of slope values for each stock.


ex:
 For a given stock,

 x={y1 , y2 , ……. , y29 , y30 }

 after MAT we get,
 Ax = {a1,a2, ….. , am-1 ,
a m}
where m=n-k+1



 TREND ASSOCIATION MEASURES:
 The MAPs of two time series datum x
and y are taken and their trend association is
measured by m

∑a yi ⋅ a xi
 coss( x, y ) = i =1
m m

 ∑a ⋅ ∑a
i =1
yi
j =1
xj

 where m=n-k+1
ax1 ax2 axm

A Association
 Value
x i.e. coss(x,y)
Ay
ay1 ay2 aym

Fig 3: Association Measure

ASSOCIATION FUNCTION:
It is the collection of the local trend values for all possible

values of k.
The values of k must be in range 2 to N.

 AF(y,x) = ( cos s2(y,x),… .,cos sn(y,x))




 MEASURE OF ASSOCIATION:
 It is the mean of the values in the Association
Function(AF) for a particular pair x ,y.

1

AM ( y, x) = mean( AFK ( y, x)) = ∑
| K | k∈K
cos sk ( y, x)
ASSOCIATION NETWORKS:


 A graph is created with each vertices as a time

series data and the edges as the Mean of Association
Function(AM).
BHARTI ARITEL
 0.4
81
9
38
0.


0.874
CIPLA
BAJAJ AUTO
0.359
0.8 24
94 0.8
High Positive Association

BHEL

Fig 5: Association Network

 GROUPING:
 The stocks having strong positive associations among
themselves are collected to form groups.


-1 +1

0.75

Fig
 6: Association Scale and Grouping Grouped Stocks


 SYSTEM SPECIFICATIONS
• The Association value is of range:
 Positive Association Range: 0(minimum) to
+1(maximum)
 Negative Association Range: 0(minimum) to
-1(maximum)
• Grouping is done with stocks having association > = 0.75.
• Categorization of portfolio according to the percentage of
the grouping in the portfolio:
 0 - 60% - LOW RISK
 60 - 80 - MEDIUM RISK
 80 - 100 - HIGH RISK
• The Association matrix is symmetric.
 The system is developed for both Individual’s stock portfolio
and Mutual Fund Portfolio.
•
 C A S E S T U D IE S
C A S E 1 : INDIVIDUAL’S STOCK PORTFOLIO

 COMPANIES TATA- TATA- TCS WIPRO INFOSY

POWER STEEL S
 TATA- 1.000 -0.043 -0.034-0.063 0.170
 POWER
TATA- 1.000 -0.2000.778 0.880
STEEL
TCS 1.000 -0.111 -0.204

WIPRO 1.000 0.839

INFOSYS 1.000


 MEDIUM RISK



C A S E 2 : INDIVIDUAL’S STOCK PORTFOLIO


COMPANIE BHARA BAJAJ- BHE CIPLA DLF
 S TI- AUTO L

BHARATI- ARITEL
1.000 0.389 0.359 0.481 0.494
ARITEL
BAJAJ- 1.000 0.894 0.874 0.941

AUTO
BHEL 1.000 0.824 0.907

CIPLA 1.000 0.878
 DLF 1.000


 HIGH
RISK



CASE 3: INDIVIDUAL’S STOCK PORTFOLIO

 COMPANIE M&M MARUT RCO WIPRO L&T

S I M

M&M 1.000 0.589 0.300 0.491 0.527

MARUTI 1.000 0.099 0.729 0.964
 RCOM 1.000 0.180 0.065
 WIPRO 1.000 0.706

L&T 1.000


The GROUP is ( Threshold = 0.75):

MARUTI

L&T SWING TOGETHER


LOW RISK
 THE CATEGORY OF THE GIVEN
PORTFOLIO IS:

 MUTUAL FUND PORTFOLIO
• The user enters a mutual fund portfolio and the
no: of common stocks is found and the
classification is done as,
1. >50% - Higher Concentration.
2. 20-50% - Moderate Concentration.
3. <20% - Well Diversified Portfolio.
•
•
• The stocks in all the portfolios are then
combined and the association matrix for it is
obtained and the risk is calculated for the
overall portfolio.

MUTUAL FUND(MF) DESCRIPTION

INDIVIDUAL
STOCK
PORTFOLIO

HDFC TOP PICKS

STOCK PORTFOLIO

TATA GLOBAL
FUND
STOCK
PORTFOLIO

RELIANCE
REGULAR SAVINGS
STOCK PORTFOLIO


 C A S E 4 : INDIVIDUAL’S MUTUAL FUND PORTFOLIO




COMPANI Hero- BHART DLF ITC ONGCTATA- HIND



ES Honda I- STEEL ALCO

Hero- 1.000 AIRTE
0.516 0.351 0.221 0.258 0.485 0.680
L



Honda
BHARTI- 1.000 0.494 0.585 0.372 0.537 0.712


AIRTEL



DLF 1.000 0.082 0.909 0.897 0.719

ITC 1.000 -0.234 0.045 0.566

ONGC 1.000 0.741 0.797



TATA- 1.000 0.895
STEEL



HINDALC 1.000
O
The Total Number Of Stocks is: 10
No: Of Repeated Stocks:3

Thus the given portfolio is of :

AND LOW RISK MODERATE CONCENTRATION
TIME SERIES FORECASTING:
 The future values of the time series can
be predicted using least square method which
is explained as,


LEAST SQUARE METHOD:

 This method is mainly used for forecasting
data which follows a linear trend. It is the
linear regression method.
 y= a + bt
 knowing the values a ,b we can find the
value y for any t.
•
Quarterly Projection:
 This method is used in predicting the top line
and bottom line of the company for the next
two quarters and the expected growth rate of
the company is found.
 MOVING AVERAGE FORECASTING:
 Moving Averages can also used for forecasting. This method
is based on predicting the future value based on the
average of the current values in the window.
The formula is ,

 Ft+1 = at + bt
 Where,
 Ft+1 – Forecast of value at t+1
 at , bt – parameters for forecast
Also,

 at = 2Mt’ + Mt’’
 bt = [2/(N-1)] * (M’t - Mt’’ )
Where,

 Mt’ - Single Moving Average of length k

 Mt’’ - Double Moving Average of length k(i.e.
moving average of moving
averages)
 N - Number of Data Samples

 Example for Moving Average Forecast :


Period Series Mt’ Mt’’ at bt Ft+1

1 12
2 13
3 11 12
4 14 12.67
5 14 13 12.56 13.44 0.44 13.89
6 13 13.67 13.11 14.22 0.56 14.78
7 15 14 13.56 14.44 0.44 14.89
8 15 13.67 13.78 13.56 -0.11 13.44
9 16 14.67 14.11 15.22 0.56 15.78
10 17 15.33 14.56 16.11 0.78 16.89
11 16 16.33 15.44 17.22 0.89 18.11
12 14 15.67 15.78 15.56 -0.11 15.44
 TECHNICAL RATING OF
STOCKS
• The moving average forecast method is used to
forecast the prices of the shares for the next
5 days and is used in the calculation of the
momentum indicator and also stochastic
oscillator, thus making those parameters not
only take previous values as inputs but also
projected values and thus making it more
accurate.
• By including the grouping of stocks based on
the 30 day movement, the technical rating of
the stock can be determined in a better way.
• Thus the combination of momentum indicator,
stochastic oscillator, volume indicator,
relative strength index (RSI) will help in
calculating the technical risks involved in the
stock.
 DATA MINING TECHNIQUES:
ASSOCIATION:
• The association value between two stock values(time-series
data) is found
GROUPING:

• Based on the value of the association among the stocks, the

stocks are grouped together.
REGRESSION:

• The Moving Approximation Transformation basically uses

linear regression method.
• The transformation of time-series data to slope values in
based on linear regression method.
MOVING WINDOW TECHNIQUE:

• The Moving Approximation Transformation which transforms

the time-series values into slope values is by using the
moving window techniques.
FORECASTING:

• Forecasting is done to find the future value of the stock based

on the present values.
• There are many methods like moving average forecast,
exponential smoothing method, etc.
 OBJECTIONS-RAISED

• Lack of proper explanation of

technical & Data Mining concepts
used.
• Lack of IEEE or other technical base
paper which is to be implemented.
• No Proper Pictorial Presentation of
the concepts involved in the
project.
•
•
THANK YOU