Portfolio Optimisation and Management
?? Disclaimer: This dashboard is purely built for education purpose only!! Do your own research before buying with your hard-earned money.
A portfolio is a combination of multiple investment securities such as bonds, stocks, mutual funds, pension plans, real estate and even physical assets such as gold (coins or bars). There is always a degree of risk when you invest. Portfolio management is all about selecting the right set of assets in order to minimize your investment losses and maximise your returns. The best asset allocation for your portfolio will depend on many factors like Years of Compound Growth, Money Invested, Taxes You Pay, Asset Diversification, Portfolio Rate of Return etc. Below is a sneak peak to understand how to diversify your investments based on Correlation, Risk vs Returns and provide the optimised weights.
" It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you will do things differently. "
- Warren Buffet
The tool helps us to pick up about 10 stocks in the portfolio basket and monitor the performance. We can provide the weights at which we are going to invest in each and every instrument and select the appropriate dates.
The portfolio performance tab shows the distribution of the instruments in the portfolio, calculates the month over month returns based on the portfolio 1 weights and the portfolio plot shows the comparison between portfolio 1, portfolio 2 for the initial amount invested for the selected dates.
The Correlation Analysis compares the relationship between the various stock-based on historical returns. Correlation coefficients are on a scale from -1 to 1, with 1 indicating perfect correlation, -1 suggesting inverse correlation, and 0 indicating no correlation. Let's say your portfolio contains Dr Reddys, Reliance, HCL Tech and Wipro with 25% each in all the instruments. Any bad news in the IT sector would collapse most of your capital as you have invested more in the IT sector and there is a high correlation between HCL Tech and Wipro. So it is advised to shift your capital into a new sector or stock where the correlation is low.
The Portfolio Metrics tab help to analyse the key aspects while building the best portfolio. A few of them include Alpha, Beta, Sortino ratio, Kurtosis, Annualised Return, Std Dev etc. For example, if the Sortino ratio for portfolio 1 is 0.2 and Portfolio 2 is 0.6 respectively. We will pick portfolio 2 as the best because of the higher Sortino ratio.
Optimised Weights tab checks the best weights for the selected stocks by running for random weights. According to Markowitz, popularly known as the theory of investment or portfolio theory investors would like to maximize the expected return (or mean return) and minimize the risk of returns (or the variance of returns). Currently, we have incorporated the Mean Variance and Minimum Variance methods to understand the optimised portfolio.
- Mean Variance Portfolio - There should be a combination of weights possible such that the variance of the portfolio is minimum.
- Minimum Variance Portfolio - There should be a combination of weights such that we can achieve a portfolio with the maximum return possible.
Risk vs Reward tab plots the Efficient Frontier and Portfolio weights across the frontier. A portfolio frontier is a graph that maps out all possible portfolios with different asset weight combinations with Risk plotted on the x-axis and the rewards on the y-axis. Efficient frontier comprises investment portfolios that offer the highest expected return for a specific level of risk. Looking at the charts helps to identify the risk and returns associated with various random portfolio sizes. Successful optimization of the return versus risk paradigm should place a portfolio along the efficient frontier line. Optimal portfolios that comprise the efficient frontier tend to have a higher degree of diversification.