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The combination of currencies, commodities, futures and stocks forms a portfolio. The latter is intended for making efficient investment, analysis and profitable trading. The creation of low risk portfolios based on the theory of portfolio diversification is the most ultimate goal. It is important to read and follow all the steps of portfolio investment, be familiar with its pros and cons in order to avoid unexpected outcomes.
Financial Portfolio is a collection of assets including stocks, commodities, cash equivalents, futures, to name a few. Portfolio may be built and managed by an investment company, financial institution or an individual. A portfolio can be pictured as a pie chart comprised of various asset classes of appropriate value that depends on risk-return ratio chosen by the investor.
Investment portfolio is a combination of different assets such as stocks, bonds, mutual funds, etc., owned by an individual or an organization. An investment portfolio is designed to achieve a specific investment objective based on different factors such as risk tolerance, time frame, asset preference and liquidity needs. Portfolios are usually created with a mix of assets that have the potential to achieve the desired returns, while minimizing risk and volatility through proper diversification and balance.
Stock Portfolio is a collection of holdings on the stock market, owned by the same individual or organization. Although stocks may seem to be a risky investment, wisely built and diversified stock portfolio, over time, does better than other investments. Before creating an appropriate stock portfolio, one needs to research on different kinds of stocks, as well as on companies and individuals that hold them.
Portfolio Analysis is a financial term which can be defined as a study and/or observance of the performance of a certain portfolio regarding the level of its return and the possible risks. The essence of the study is to find solutions for minimizing risks and increasing returns.The term refers to various financial instruments such as currencies, stocks, commodities, indices, and many more.
Investment risks are an inherent factor to any investment. Investing in low risk assets with low volatility and low rate of return is a safer choice for risk averse. However,one should take into consideration that a low risk investment has a low return expectation accrdingly. Another trade off for low risk investment is that it requires less time for gathering information on the assets to invest in as well as on progress monitoring. Thus, overall portfolio construction and maintenance takes less time and effort.
Portfolio diversification can be defined as an inclusion of multiple assets in a portfolio, so that going down of one asset and the resulting losses can be compensated by other assets. Thus, it can be claimed, that portfolio diversification is aimed at reducing the risks. As well as that the aim of risk diversification strategy is to reach the optimal risk return-ratio of an investment.
The key of reducing the risk is to avoid a portfolio where all the securities are strictly correlated with each other. If the correlation among the security returns is positive, meaning that the security returns move up and down in perfect unison, diversification is powerless when it comes to risk reduction. By mixing up diverse assets in your portfolio, you are less likely to experience major drops as they do not move and up down at the same rate and at the same time.
Portfolio management encompasses construction of portfolios and their evolution so that it’s possible to achieve the expected return. Nowadays fund management methods range from quantitative investment originated in Modern Portfolio Theory to rather traditional methods of financial analysis. However, the former is among the most popular in the portfolio management process.
Portfolio management strategies are classified in two groups: active and passive. Active management refers to mutual funds and passive management concerns index funds.
Efficient Frontier presents a set of optimal portfolios offering the highest expected return for a given level of risk or the lowest risk for a given level of expected return. The efficient portfolios have the optimal risk return balance and can be considered optimal for given risk-return ratio.