Final project building an investment portfolio in vietnam stock market

SSI SSI Securities Corporation is a leading securities company in Vietnam.. MAIN BUSINESS ACTIVITIES  Brokerage: SSI Securities Corporation is a leading brokerage firm in Vietnam, offer

QUANTITATIVE FINANCE FINAL PROJECT BUILDING AN INVESTMENT PORTFOLIO IN VIETNAM STOCK MARKET

UEH UNIVERSITY COLLEGE FOR BUSINESS School of Finance

Lecture: Phùng Đức Nam

Student name: Võ Khánh Toàn

Student code: 31211021129

Class: FNC02

Email: toanvo.31211021129@st.ueh.edu.vn

Course ID: 23C1FIN50505101

Ho Chi Minh City, 13 December,2023th

Table of Contents

I Introduction 1

1 Overview 1

1.1 SSI 1

1.2 HPG 1

1.3 VCI 2

1.4 CTR 2

1.5 KDH 3

2 Reasons to choose stocks: 4

II Analysis 4

1 Data: 4

2 Input Calculation: 4

2.1 Risk-free rate: 4

2.2 Returns: 4

2.3 Variance-Covariance Matrix 5

2.4 Correlation Matrix 5

2.5 Sharpe Ratio 6

3 Applying Results 6

3.1 Calculating the Equally-Weighted Portfolio 6

3.2 Finding the Minimum Variance Portfolio 7

3.3 Drawing the graph of the envelope (efficient) frontier 8

I Introduction

1 Overview

1.1 SSI

SSI Securities Corporation is a leading securities company in Vietnam It was founded in December 1999 and is listed on the Ho Chi Minh Stock Exchange (HOSE) with the SSI ticker SSI has grown from a small private company with a registered capital of VND 6 billion to a leading securities company with a registered capital of VND 6,029 billion, an increase of over 1,000 times As of 2020, the company's total consolidated assets were nearly VND 26,000 billion The current chairman of the board of directors of SSI is Mr Nguyễn Duy Hưng

MAIN BUSINESS ACTIVITIES

 Brokerage: SSI Securities Corporation is a leading brokerage firm in Vietnam,

offering a comprehensive range of brokerage services to individual and institutional investors These services include order execution, margin trading, and custodial services

 Investment Banking: SSI Securities Corporation is a prominent investment

bank in Vietnam, providing a wide spectrum of investment banking services to both domestic and foreign companies These services encompass mergers and acquisitions (M&A), equity underwriting, and debt underwriting

 Securities Underwriting: SSI Securities Corporation is a leading securities

underwriter in Vietnam, underwriting equity and debt securities for companies

 Asset Management: SSI Securities Corporation is a prominent asset manager

in Vietnam, managing a diverse range of investment funds for both individual and institutional investors These funds invest in various asset classes, including equities, fixed income, and real estate

 Securities Research: SSI Securities Corporation provides its clients with

high-quality securities research, covering both Vietnamese and international companies This research assists clients in making informed investment decisions

1.2 HPG

Originating as a company dedicated to trading construction machinery in 1992, Hoa Phat has emerged as Vietnam's premier industrial manufacturing conglomerate Over time, Hoa Phat has diversified its operations to encompass sectors like furniture, steel pipes, construction steel, refrigeration, real estate, and agriculture On November 15,

2007, Hoa Phat formally listed its shares on the Vietnam Stock Exchange under the ticker symbol HPG

OPERATING IN 5 FIELDS:

● Iron and steel (construction steel, hot rolled steel)

● Steel products (including steel pipes, galvanized steel sheets, wire drawing steel, prestressed steel)

● Agriculture

● Real estate Real estate

● Household appliances

1.3 VCI

Vietcap Securities Joint Stock Company (international trading name: Vietcap Securities Corporation) is a securities company in Vietnam established in 2007 This

is one of the fastest-growing securities companies in Vietnam

Since its establishment, Vietcap has continuously developed and affirmed its position

in the Vietnamese stock market The company was honored as the Securities Company with the best brokerage service in Vietnam in 2022 by Forbes Vietnam Magazine

Vietcap provides a range of securities services, including:

 Securities brokerage and custody: Vietcap provides brokerage services, such

as order execution, margin trading and securities custody The company also provides securities custody services, such as securities custody and management

 Securities investment: Vietcap invests in many types of securities, including

stocks, bonds and derivatives The company also provides investment consulting services to its customers

 Investment banking: Vietcap provides a variety of investment banking

services, such as mergers and acquisitions (M&A) consulting, initial public offerings (IPOs) and bond underwriting

 Margin lending: Vietcap provides margin lending services, allowing

customers to borrow money from the company to buy securities

1.4 CTR

Viettel Construction Joint Stock Corporation (Viettel Construction) is a Vietnamese construction company founded in 1995 The company is a subsidiary of Viettel Group, a leading telecommunications and technology company in Vietnam

Viettel Construction's main activities include:

 Telecommunications infrastructure construction: The company has built

over 50,000 telecommunications towers and 320,000 kilometers of fiber optic cable in Vietnam, covering 100% of the country's territory

 Civil construction: The company also builds residential, commercial, and

industrial buildings in Vietnam

 Information technology: The company provides information technology

solutions to businesses and government agencies

 Integrated solutions: The company provides integrated solutions that combine

telecommunications, information technology, and construction

 Technical services: The company provides technical services for

telecommunications and information technology systems

Viettel Construction has a workforce of over 11,000 people The company is committed to providing high-quality services and solutions to its customers 1.5 KDH

Khang Dien House Trading and Investment JSC (KDH) is a prominent real estate developer in Vietnam, specializing in developing upscale residential and commercial properties in Ho Chi Minh City Established in 2001, the company boasts a remarkable track record of growth and profitability

KDH's core business activities encompass:

 Residential Property Development: KDH develops a diverse range of

residential properties, including apartments, villas, and townhouses Strategically located in prime areas of Ho Chi Minh City, the company's projects cater to middle- and upper-income buyers

 Commercial Property Development: KDH also ventures into commercial

property development, encompassing office buildings, retail centers, and hotels These projects are primarily situated in central business districts, catering to businesses of all sizes

 Real Estate Project Investment: KDH strategically invests in real estate

projects that complement its development business These investments typically involve land acquisition or joint ventures with other developers

Sources: https://www.ssi.com.vn/en

www.vietcap.com.vn

https://www.hoaphat.com.vn/

https://viettelconstruction.com.vn/gioi-thieu/

2 Reasons to choose stocks:

I chose 30 Vietnamese joint stock companies with many different industries such as real estate, banking, industry, and consumer industry, etc The stock codes are: SSI, HPG, VCI, CTR, KDH, BID, VCB, PLX, FPT, CMG, VGC, NTP, HDB, POW, HMC, MSB, ACB, MBB, PAN, PNJ, ANV, VNM, DDV, AGG, VIC, MWG, MSN, HBC, EIB, PDR

Based on the annual return, I pick the 5 stocks with the highest annual return which are SSI, HPG, VCI, CTR, and KDH

1 Data:

The data collection contains the historical price of 5 stocks SSI, HPG, VCI, CTR, and KDH from 1 November 2022 to 1 November 2023 which is taken fromst st

Investing.com In terms of the risk-free rate, we decided to base it on the 10-year government bond starting at the beginning of October 2023 Below are the sites: Vietnam 10Year Government Bond Yield Quote Chart Historical Data -News (tradingeconomics.com)

https://www.investing.com/

2 Input Calculation:

2.1 Risk-free rate:

The value of Risk-free rate is 2.4930%

2.2 Returns:

We use this formula to calculate the daily return of each of the 5 stocks:

R t=P t −P t−1

P t−1

Since we have to convert the calculation from daily to annual, we decided to calculate the annual return of each security by averaging the daily return by 250, which is the number of trading days in Vietnam

The five stocks in the portfolio all have relatively low expected returns, indicating that investors should not anticipate significant short-term gains from these investments However, this also means that these stocks are relatively low-risk, offering a measure of stability in the investment landscape Despite their modest expected returns, all five stocks have demonstrated impressive annual returns in

2023, a positive sign that should be interpreted with caution, as past performance

is not necessarily indicative of future results Diversification across different industries further enhances the portfolio's resilience, minimizing the impact of fluctuations in specific industries Overall, the portfolio's composition aligns with

a cautious investment approach, prioritizing stability and risk mitigation over aggressive growth strategies

2.3 Variance-Covariance Matrix

I construct the Variance-Covariance matrix by using this formula in Excel:

With:

 X: the daily return minus the average daily return

 n: the number of trading days in Viet Nam

Afterward, we calculate the standard deviation of the portfolio, called risk in our Excel file, which equals to:

Var p =250∗MMULT (TRANSPOSE(w) , MMULT Cov , w( ))

σ p=√Var p

2.4 Correlation Matrix

I construct the Correlation Matrix by using this formula in Excel:

 varcovar: the variance-covariance matrix

 stdev: the daily standard deviation of the stocks

The overall correlation between the stocks is relatively high This is evident from the fact that most of the correlation coefficients are positive and greater than 0.5 This means that the stocks are likely to move together in the same direction The highest correlation is between SSI and VCI (0.8492228) This means that these two stocks are the most closely correlated, and are likely to move together the most The lowest correlation is between CTR and KDH (0.477363) This means that these two stocks are the least correlated, and are likely to move together the least

The high correlation between the stocks in the portfolio suggests that the portfolio

is not very diversified This means that the portfolio is more exposed to risk from fluctuations in the overall market However, the relatively high correlation between the stocks also suggests that the portfolio is likely to generate similar returns to the overall market

2.5 Sharpe Ratio

I calculated using the formula:

3 Applying Results

To calculate each element I use some formulas in Excel:

 Expected return:

 Variance:

 Standard deviation:

 Sharpe ratio:

3.2 Finding the Minimum Variance Portfolio

 I will start by finding the portfolio with the lowest possible variance, which will be our starting point for the efficient frontier We will use Excel's Solver tool to do this

 In the "Set Object" box, I input the cell that contains the Variance value, setting the Target to Min

 The things I will change are the proportions of each stock in the portfolio

 I impose the condition that the sum of these weights must be 100% to ensure a fully invested portfolio

Here is the result:

WHEN SHORT SELLING IS NOT ALLOWED:

The “Make unconstrained Variables Non-Negative” has a tick:

WHEN SHORT SELLING IS ALLOWED:

The “Make unconstrained Variables Non-Negative” does not have a tick:

3.3 Drawing the graph of the envelope (efficient) frontier

To graph the Efficient Frontier, I will use the Excel’s What-If Analysis/Data Table

to make data to graph

First, I will make some simulations from 1 to 10000 to graph the Efficient Frontier With the command “Data Table”:

In the “column input cell”, I will pick the blank cell and then click OK

Here is the result and the graph:

Efficient frontier is a curve that describes the set of optimal investment portfolios, with the highest risk and return ratio In the graph, the efficient frontier is represented by the blue curve

Efficient frontier has a positive slope This means that to achieve higher returns, investors must accept higher risks

Efficient frontier has a curved shape This means that investors can choose an investment portfolio with a risk and return ratio that suits their needs and risk appetite

A portfolio located on the efficient frontier is optimal This means that one portfolio cannot improve its risk and return without reducing the risk or return of another portfolio on the efficient frontier