What is Portfolio analysis? Definition and Types.

What is Portfolio Analysis? Definition  and Types.  

Definition :-Portfolio analysis is a Process of evaluating performance of a collection of investments to determine it's strength and weaknesses as well as to identifies areas where it can be improved. Portfolio analysis enjoyed great popularity in the 1970's. It has been criticized as well on a number of grounds. 

There is a analogy with an investment portfolio, investment decisions are taken after categorize the investments according to their characteristic and the main purpose is to improve the balance of the portfolio so that cash flows of business are reinvested in others with greater potential. 

Portfolio management :- it is based on an analysis of business by relative market share and market growth rate. It is the process of managing collection of investment To achieve specific set of financial objectives. The main objective of portfolio management is that to maximize Returns while minimizing risk. 

Types of portfolio analysis

1. Risk return analysis :- this is the type of portfolio analysis which involves examining the relationship between the amount of just taken and the potential return generated by the portfolio. 

2.Diversification analysis:- it is a type of portfolio analysis in which examines the diversification of the portfolio to ensure that it is not overly concentrated in any one asset or sector. Well diversified portfolio is less susceptible To market wallatility and can provide more stable returns over a long term. 

3.Performance analysis:- it is a type of portfolio analysis which examines the performance of the portfolio and compare it to relevant benchmark weather it is meeting it's objectives or out performing the market. 

4.Asset allocation analysis:- this is the type of portfolio analysis in which it is examine the allocation of assets within the portfolio to ensure that it is allied with the investor goals, risk tolerance, and investment time horizon. 

5. Value at risk analysis:- this is the type of analysis which is used to measure the maximum potential loss of the portfolio Uber specific time period at a specific level of confidence it is also help the investor to risk management. 

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