As a result of the Corona Virus, we may be in for a bear market in the coming months so it's important that we not only protect our portfolio from losses but also set ourselves up for gains. Whether it's the current threat of COVID-19 or some future bear market in years to come, it's important to not only know how to survive but also how to make money when the market is volatile and heading south.
By analyzing your stock portfolio through the lens of Factor Contributions, you gain a deeper level of insight into where your returns are really coming from and whether or not you should increase exposure to specific Factors. This article explains how you can use Factor Analysis to improve the performance of your own portfolio.
Factor investing, sometimes referred to as smart beta, involves allocating certain percentages of your portfolio towards defined characteristics that have ideally been shown to produce excess market returns. Additionally, factor analysis can be used to determine if your portfolio has produced any alpha over and above known characteristics which can be attributed to investor skill and not to simple factor exposure.
Hedging and diversification are related concepts in the sense that they both aim to reduce risk, however they do this in different ways, have different goals and are applied for different reasons.
The concept of an efficient frontier is a cornerstone of modern portfolio theory. It provides an excellent way to not only understand the relationship between the risk, return and correlation within a portfolio but also to visualize this data in an effort to optimize your portfolios performance.
There are countless ways to quantify stock portfolio performance and risk characteristics. It is important to be able to compare your portfolio relative to a benchmark or against other portfolios. While it is impractical (and unnecessary) to understand every portfolio metric available, there are a few which are prolific throughout the professional investment industry and should be understood when analyzing portfolio performance.
Diversify Portfolio is pleased to announce the release of its stock portfolio backtester.
This is an adaptive asset allocation strategy that seeks to combine defensive (ie: volatility) and offensive (ie: momentum) components.
The EAA is a tactical asset allocation strategy that combines 4 factors to determine the optimal portfolio allocation and positions sizes.
The minimum correlation algorithm is a relatively new asset allocation strategy. The strategy is robust in its design, applies solid diversification principles and performs well in relation to other asset allocation strategies.