portfolio analysis
Exam Tayari/Notes

What is Portfolio Analysis? Scope of Portfolio

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Portfolio Analysis

What is portfolio analysis? A portfolio is a combination of a number of securities. Portfolio analysis is a quantitative method for selecting an optimal portfolio that can strike a balance between maximizing the return and minimizing the risk in various uncertain environments. To select the optimal portfolio, we must first answer the questions “what is return of a portfolio” and “what is risk of the port-folio”. If we could only use the natural language like “the likely gain of the portfolio” to describe return and “the likely loss of the portfolio” to describe risk, we would not be able to quantify return and risk of the portfolio. Then it would be

impossible to compare the return level and risk level of portfolios, let alone find the maximum return and minimum risk. To use measurable terms to define return and risk, we should start with input data, i.e., the individual security returns.

Scope of Portfolio

Portfolio management is a continuous process. It is a dynamic activity. The following are the basic operations of a portfolio management.

  1. Monitoring the performance of portfolio by incorporating the latest market conditions.
  2. Identification of the investor’s objective, constraints and preferences.
  3. Making an evaluation of portfolio income (comparison with targets and achievement).
  4. Making revision in the portfolio.

Implementation of the strategies in tune with investment objectives.

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