Portfolio Management Techniques Decoded

A portfolio is an assortment of various stocks, a collection of various financial assets. Portfolio Management refers to managing them professionally in such a manner as to multiply the assets while considering the risk tolerance and the objectives of the investors. The strengths, weaknesses, opportunities and threats as well as the risk level need to be considered while investments are made.

A portfolio is an assortment of various stocks, a collection of various financial assets. Portfolio Management refers to managing them professionally in such a manner as to multiply the assets while considering the risk tolerance and the objectives of the investors. The strengths, weaknesses, opportunities and threats as well as the risk level need to be considered while investments are made. It is one of the major branches of finance and there are various professional courses catering to the study of portfolio management and it is a major line of study for people pursuing finance as a career.

The various methods to maximize the return at a given risk quotient are referred to as Portfolio Management Techniques. These techniques focus on achieving a balance between growth and stability. They involve assessing the performance of the portfolio based on risks and also a benchmark that has been set for the same. Diversification of the portfolio, risk measurement, asset pricing and risk-return trade-off, etc have  to be kept in mind while managing a portfolio. It is however very difficult to manage a portfolio and reap benefits as desired during tough economic conditions for a portfolio manager. Generating good returns in volatile markets with minimal risks (investors would be opposed to taking major risks under volatile market conditions) is a difficult task indeed for the managers of the portfolio.

Various Portfolio Management Techniques

The various Portfolio Management Techniques are – Heuristic models, scoring techniques and visual or mapping techniques. Scoring techniques are used to increase the profitability and find the exact investment needs. Simple Additive Weighting and Weight Product Method are the two commonly used methods of scoring techniques.

Scoring Techniques

Scoring techniques involve identifying non-monetary attributes that have an impact on the returns and allocating some weights to these attributes based on their importance. However, since we use historic samples to arrive at the factors and their weights, the sample should be large enough and accurate. They assist a portfolio manager in identifying risks and taking appropriate measures.

Visual or Mapping Techniques

Visual or mapping techniques employ graphic representations to depict the balance of the portfolio using two or more criteria. These criteria can be viewed as the dimensions of the graph or the pictorial representation. For instance, the most commonly and widely used portfolio diagram is a representation of probability of success vs. reward. A bubble diagram is a popular way of representation. A circle or ellipse is drawn for identification of each project and information can be depicted using the shape of the circle, shading a region, etc.

Portfolio Planning Matrix

Portfolio Planning Matrix is a tool used by the various large companies to manage the assets/ portfolio of their strategic business units. The matrix represents the growth opportunities and market share.

Till date, various new techniques and strategies have been developed to assess and measure risks while maximizing the return for the investors. This field of study and business is under constant innovation and is a main stay of a company’s profitability.

Portfolio Management Techniques by CEIS Review, For more information visit us at http://www.ceisreview.com/pages/Services/2/105/CRE_Portfolio_Stress_Testing