Modern portfolio theory

Modern portfolio theory

Modern Portfolio Theory

Modern portfolio theory is an investment theory. It allows the investor to assemble an asset portfolio that will maximize the return for a particular level of risk. The theory assumes investors will prefer less risky portfolios. Modern portfolio theory (MPT) can also be used to construct a portfolio that will minimize ↓ risk for a given level of expected return. Due to the abundance of market data, market risk has attracted significant interest since the 1950s. (more…)
Equity vs Fixed Income

Equity vs Fixed Income

Equity vs Fixed Income

If a person wants to generate income or appreciation in the future he acquires an asset known as investment. An investment is always purchased to generate more in the future than you invest today. But there is always a risk associated with the investment. Investments instead of profits can also generate losses as they can lose value in the future. For example, you invest in a company and that company goes bankrupt. One can invest in these different types of investments such as bonds, stocks, mutual funds, exchange-traded funds, index funds, and options. This article aims to provide an overview of Equity vs Fixed Income. (more…)
Value vs Growth Investing

Value v/s Growth Investing

Value v/s Growth Investing

Growth and value investing are two fundamental approaches, or styles, that are used in stock and stock mutual fund investing. Growth investors are those who seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace. Since these two styles complement each other, they help in adding diversity to a portfolio when used together. This article will provide you with an overview of Value v/s Growth Investing. (more…)
Alternative Investments

Alternative Investments

Alternative Investments

Investing is owning an asset or item with the intention of generating some income or appreciation in the value of the asset. An investment is any means to generate an income in the future including bonds, stocks, real estate, etc. Alternative investments are unconventional investments or investments other than stocks, bonds, and cash. Generally, these types of investments are done by large institutions, high net worth individuals, etc due to their complexity, riskiness, and lack of regulation.

(more…)
Falling Knife

Falling Knife

Falling Knife

Sharp drops in stocks seen during a week’s time are referred to as a ‘Falling knife”. It is a term used to describe a quick drop in the price of a security, such as a stock. It does not have a specific magnitude or duration to drop before a falling knife constitutes. (more…)
Efficient Frontier

Efficient Frontier

Efficient Frontier

Efficient frontier or Portfolio frontier, a part of modern portfolio theory comprises efficient parts of the risk-return spectrum. It occupies investment portfolios that offer the highest expected return for a specific risk level. It is a set of optimal portfolios that are expected to give higher returns for a minimum level of return. (more…)
Expected Return

Expected Return

Expected Return

The expected return on financial investment is the expected value of its return. It is a measure of the center of the distribution of the random variable that is the return. (more…)
Investment Policy Statement

Investment Policy Statement

Investment Policy Statement

An investment policy statement (IPS) is a document drafted between a portfolio manager and a client. It outlines the rules and guidelines that the portfolio manager should abide by when considering asset allocation in the client’s portfolio. In other words, an investment policy statement states how a portfolio manager should try to manage the client’s money. A few examples of issues that are addressed in an IPS are asset allocation decisions, client risk tolerance, leverage, liquidity requirements, and foreign security investment restraints. (more…)
Adjusted Beta

Adjusted Beta

Adjusted Beta

The beta is a measure that shows how an individual asset moves when the overall stock market increases or decreases. Basically, it is a numeric value that measures the fluctuations of a stock to changes in the overall stock market. Beta is used in Capital Asset Pricing Model which helps in describing the relationship between systematic risk and expected returns. (more…)
Sortino Ratio

Sortino Ratio

Sortino Ratio

Often retail investors struggle to find the ‘right’ investment scheme which would match their financial requirement and investing capability. However, by making use of financial ratios like the Sortino ratio, they can evaluate the performance of a scheme in a much better manner. (more…)