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The Portfolio Analyzer allows you to generate a comparison of your current portfolio to see how potential changes will affect key metrics.

Overview

An important part of managing a well diversified stock portfolio is making sure that every change you make to the portfolio provides a real and quantifiable benefit to the portfolio as a whole. This includes adding new positions, closing existing positions as well as increasing or decreasing position sizes.

A common mistake many investors make is that they analyze potential new positions in a vacuum. After looking into the fundamentals or technicals of a company and deciding it looks good, they simply add it to their portfolio and move on.

The problem is that they haven't taken the time to check if the new position complements their existing positions or whether it will provide a quantifiable benefit to the portfolio as a whole. This video series goes into detail on the concepts of quantifiable benefits and creating an efficient portfolio.

Comparisons

To help with this issue, the Portfolio Analyzer tool allows for the creation of comparisons which show the effect of potential changes to the portfolio. For example, in the following screenshot we have an 8 position portfolio.

Next, lets say we're considering the following changes to the portfolio:

  • Purchase another 50 shares of Facebook
  • Close the Macy's position
  • Open a new position in Tesla

The changes can be setup in the Portfolio Analyzer and then by clicking 'Generate Comparison', we're able to see how the portfolio will be affected.

Once the comparison has been generated, the original portfolio metrics will be on the left followed by the comparison on the right. It looks like these potential changes might be a step in the right direction. Looking at the metrics below, both the Diversification Ratio and the Intra-Portfolio Correlation metrics have increased which is generally a good sign.

Looking at the cluster charts below, we've gone from 3 clusters to 4 which should also be a good sign in terms of diversification and risk mitigation.

By continuing with this process through each of the metrics and charts, you're able to determine whether or not potential changes to the portfolio are in fact worth doing.

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