Risk and Return Relationship: A Study of BSE Sensex Stocks in Indian Stock Market

Background: The present study is based on risk and return analysis of BSE Sensex stocks, which is the index of the Bombay Stock Exchange, and is based on the secondary data from the past 5 years. The Sensex index is the Bombay Stock Exchange of India’s benchmark that is broadly based on the stock market index of the Indian equity market.

Purpose: The main objective of the study was to investigate the risk and return of the stocks listed in Sensex and create a portfolio that reduces the unsystematic risk through diversification.

Methods: The study used secondary data from the past 5 years to analyze the risk and return of Sensex stocks and to construct a portfolio with reduced unsystematic risk.

Results: In this study it was found that the risk factor in the Sensex index was quite low and returns were quite moderate. Whereas the risk factor in the portfolio was quite low as well, the return-yielding capacity of the portfolio was high. It depends upon the investor’s risk appetite whether to invest in the Sensex index or the created portfolio.

Conclusion: The study concludes that while the Sensex index offers low risk and moderate returns, a well-diversified portfolio can yield higher returns with similarly low risk. The choice between investing in the Sensex index or the portfolio depends on the investor’s risk tolerance and return preferences.