portfolio

(noun)

The group of investments and other assets held by an investor.

Related Terms

Examples of portfolio in the following topics:

  • Beta Coefficient for Portfolios

    • A portfolio's Beta is the volatility correlated to an underlying index.
    • A portfolio's Beta is the volatility correlated to an underlying index.
    • What would the following portfolios have for Beta values?
    • Thus, the portfolio would have a Beta value of 3.
    • Two hypothetical portfolios; what do you think each Beta value is?

  • Calculating Expected Portfolio Returns

    • A portfolio's expected return is the sum of the weighted average of each asset's expected return.
    • Let's say that we have a portfolio that consists of three assets, and we'll call them Apples, Bananas, and Cherries.
    • Where A stands for apple, B is banana, C is cherry and FMP is farmer's market portfolio.
    • In reality, a portfolio is not a fruit basket, and neither is the formula.
    • A math-heavy formula for calculating the expected return on a portfolio, Q, of n assets would be:

  • Portfolio Risk

    • The risk in a portfolio is measured as the amount of variance that investors can expect based on historical data.
    • Diversification may allow for the same portfolio expected return with reduced risk.
    • In this unit, we are talking about calculating the risk of a portfolio.
    • If our portfolio of investments has diversified away as much risk as is possible given the costs of diversifying, our portfolio will be attractive to investors.
    • If an institutional investor, such as a city pension fund, looked at two portfolios with identical returns and different risks, they would choose the portfolio that minimized its risk.

  • Portfolio Diversification and Weighting

    • Weighting is the percent allocation a particular investment type receives within a portfolio.
    • These objectives can range from specific to one particular industry to something that achieves a balanced portfolio of blended assets.
    • The idea of eliminating risk by spreading investments across pools of underlying stocks and bonds is called "diversification. " A diversified portfolio spreads investments across all asset classes with a weighting system that takes time frame and risk tolerance into account.
    • The "weight" is the proportion of that portfolio assigned to one category.

  • Implications for Variance

    • A diversified portfolio containing investments with small or negative correlation coefficients will have a lower variance than a single asset portfolio.
    • As you can see from the graphic below, there is still considerable risk to an investor who is heavily invested in stocks, even with a blended portfolio.
    • Had your portfolio consisted of a set of stocks that approximated the Nasdaq index, you would have lost roughly 52% of your portfolio's value (from 4069.31 to 1950.40).
    • A diversified portfolio containing investments with small or negative correlation coefficients will have a lower variance than a similar portfolio of one asset type.
    • Diversifying asset classes can reduce portfolio variance without diminishing expected return

  • Implications for Expected Returns

    • The expected return of a diversified portfolio is the expected return of each of its underlying investments times the weight the investment receives.
    • Asset allocation is the theory that any portfolio should have a set of target weights for different asset classes based on time frame and risk tolerance.
    • Let's say we have a portfolio of $100,000 that has a target mix of 60% stocks and 40% fixed income and, therefore, has $60,000 in stocks and $40,000 bonds.
    • At this point, we have a total portfolio of $110,600 and an asset mix of roughly 62% stocks and 38% bonds.
    • Assuming rebalancing, the expected return of a diversified portfolio is simply the expected return of each of its underlying investments times the allocation weight the investment receives.

  • Relationship Between Financial Policy and the Cost of Capital

    • Other facets include portfolio theory, hedging, and capital structure.
    • Portfolio theory is a mathematical formulation of the concept of diversification in investing.
    • It attempts to maximize the expected return of a portfolio, or a collection of investments, for a given amount of risk by carefully choosing the proportions of various assets.
    • In other terms, portfolio theory attempts to minimize risk for a given level of expected return.

  • Impact of Diversification on Risk and Return: Unsystematic Risk

    • Grandma wasn't telling you to grow up and be an omelet chef, she was actually giving you some sage advice that applies to your future as a portfolio manager.
    • Proponents of passive management say the market knows best, and they seek a portfolio that has an underlying pool that mimics a benchmark index (think S&P 500).
    • Research has shown that there is a clear advantage in any portfolio to hold at least 30 different positions.
    • Their approach was to consider a population of 3,290 securities available for possible inclusion in a portfolio, and to consider the average risk over all possible randomly chosen n-asset portfolios with equal amounts held in each included asset, for various values of n.

  • Overview of How to Assess Stand-Alone Risk

    • Total Beta is a measure used to determine risk of a stand-alone asset, as opposed to one that is a part of a well-diversified portfolio.
    • Total Beta is a measure used to determine the risk of a stand-alone asset, as opposed to one that is a part of a well-diversified portfolio.

  • Making Risk Adjustments

    • A company itself will be considered, for investment purposes, as a "portfolio of assets," and its beta coefficient will represent the weighted average of each "asset's" beta.
    • The beta of an investment is equal to the covariance between the rate of return of the investment, r(a), and that of the portfolio, r(p).