In finance, a portfolio is a collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.

Management

Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected return from portfolios comprised of different asset bundles are compared. The expected gain (or expected return) is the weighted-average most likely outcome in gambling, probability theory, economics or finance. ... Risk is the potential harm that may arise from some present process or from some future event. ... In probability and statistics, the standard deviation is the most commonly used measure of statistical dispersion. ...

The unique goals and circumstances of the investor must also be considered. Some investors are more risk averse than others. Mutual funds have developed particular techniques to optimize their portfolio holdings. See fund management for details. Institutional fund management is fund management conducted by large financial firms such as banks, insurance companies and major investment organisations (e. ...

Models

Some of the financial models used in the process of Valuation, stock selection, and management of portfolios include: Valuation can mean: Valuation (finance) Valuation (mathematics) This is a disambiguation page — a list of articles associated with the same title. ...

• Maximizing return, given an acceptable level of risk.
• Modern portfolio theory - a model proposed by Harry Markowitz among others.
• The single-index model of portfolio variance.
• Capital asset pricing model.
• Arbitrage pricing theory.
• The Jensen Index.
• The Treynor Index.
• The Sharpe Diagonal (or Index) model.
• Value at risk model.

Capital Market Line Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how an asset should be priced given its risk relative to the market as a whole. ... Harry Max Markowitz (born August 24, 1927) is an influential economist at City University of New York and winner of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1990. ... The capital asset pricing model (CAPM) is used in finance to determine a theoretically appropriate price of an asset given that assets non-diversifiable risk. ... Arbitrage pricing theory (APT) holds that the expected return of a financial asset can be modelled as a linear function of various macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient. ... William Forsyth Sharpe (born June 16, 1934) is Professor of Finance, Emeritus at Stanford Universitys Graduate School of Business and the winner of the 1990 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. ... Definition In economics and finance, the Value at risk, or VaR, is a measure used to estimate how the value of an asset or of a portfolio of assets will decrease over a certain time period (usually over 1 day or 10 days) under usual conditions. ...

See also

See also: Modern portfolio theory, risk management, banking Capital Market Line Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how an asset should be priced given its risk relative to the market as a whole. ... Generally, Risk Management is the process of measuring, or assessing risk and then developing strategies to manage the risk. ... For other uses, see Bank (disambiguation). ...

External link

• SeaQuation Enterprise Portfolio Intelligence