An empirical study on the relationship of market and residual risk of securities in the Philippines

Date of Publication


Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Management of Financial Institutions


Ramon V. Del Rosario College of Business


Financial Management Department

Thesis Adviser

Tomas Tiu

Defense Panel Member

Patrick Caoile

Alfredo Santoyo

Junette A. Perez


The main objective of this paper is to test the relationship between market risk (systematic risk) and residual risk (unsystematic risk) of individual securities and to construct an optimized portfolio using the single index model. It also shows how risk is managed to create an optimal portfolio, which can help investors with their investment decisions. For the study, the researchers have collected the daily closing prices of 30 stocks from Philippine Stock Exchange index. The raw data used in this research was collected from Bloomberg wherein the research covers a period starting from 2012 up until the end of the year 2016. This method computes for the alpha, beta, unsystematic risk, and mean returns of the aforementioned securities. After the preliminary computations, the model utilizes all of the pre-computed variables to create a unique cut-off point, which selects securities that will be included in the optimal portfolio. Upon the completion of these computations the model then produces optimal proportions for each security within the portfolio. Finally, the summation of the optimal proportions multiplied with the mean returns of the securities in order to produce the return of the created portfolio.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

142, 4 leaves : illustrations (some color) ; 28 cm.


Investments--Philippines; Financial institutions--Investments--Philippines

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