Please enable JavaScript.

Coggle requires JavaScript to display documents.

PORTFOLIO THEORY AND MANAGEMENT, Nominal term - Coggle Diagram

- - - - Definition
        
        Ability to convert ILLIQUID asset into LIQUID assets with minimal or nil loss in value IN SHORT period of time
        
        loss in value = market impact
        
        Loss of value will increase if Asset is less liquid
        
        Size of the trade in crease -> loss of value will be higher
        
        Less time, higher loss of value
        
        How much CF generated by an Asset
      - Reason
        
        Emergency require
        
        Cash, cash equipvalent
        
        Liquidity is an aspect of most investment
    - - May be infinite in nature for institution investor
        
        RISK INCREASES AS A DECREASING RATE WHEN INVESTMENT HORIZON INCREASE
    - - Socially conscious
      - choice of asset class
        
        Industrial
        
        Alternative investment
        
        Crypto
      - Choice and number of fund
      - Fund Criteria and maximum allocation
  - - - Expected return
        
        Return from Riskless Investment + return relative to the average market risk
        
        E(r)= rf + β[E(rm) - rf)]
      - BETA
        
        Covariance(Investment and Market)/ Variance of the Market
      - CRITICISM
        
        Investment are normally distributed
        
        Friction market - no tax/transaction cost
        
        Small cap Beta - underestimated
        Large Cap Beta - Overestimated
        => return and abnormal returns incorrect estimate
    - - Return per Unit of st Dev
        
        SHARP
        
        ri-rf/δ(ri)
        
        ri-rf/δ(ri-rf)
        
        ri = return of the portfolio
        rf= risk free rate
      - Return adjusted for Beta
        
        Jensen Alpha
        
        Information Ratio
- - - - Spending rate
        
        This is how much you plan to withdraw from your portfolio/fund, usually expressed as a percentage of the total portfolio value
        
        SPENDING RATE (t)
        
        Spending (t)= ϒSpending (t-1)+ (1-ϒ)[θAsset(t-1)]
        
        Spending(t)
        
        the spending amount for the current period
        
        Asset(t-1)
        
        portfolio value from the previous period
        
        ϒ
        
        Factor of influence from last period spending
        
        0 = completely not based on last spending
        1= 100% based on last year spending
        
        θ
        
        A parameter that determines what fraction of assets is used for spending
        
        fraction of assets that is converted into spending
        
        ϒSpending (t-1)
        
        This means a proportion γ of past spending carries over into the current period.
        
        (1-ϒ)[θAsset(t-1)]
        
        This determines how spending adjusts based on asset levels
      - Inflation
        
        Reducing purchase power. FUTURE EXPECTATION
      - Real Return
        
        This is the return above inflation that you want your portfolio to achieve to meet your long-term goals
        
        Howe much you want your portfolio to grow in REAL term
      - Contribution
        
        If contribution is added regularly, required return will not need to be as much effort hence removed
      - Expense
        
        These are costs like investment management fees, transaction costs, or taxes that reduce your net return.
  - - - refers to the actual gain or loss an investment generates over a specific period, expressed as a percentage.
    - - Relative return measures an investment's performance compared to a benchmark
- - - - Unsystematic
        
        Firm specific
        
        Can be diversify
      - Systematic
- - - - Change in value from the peak of the market to the bottom of the market
- - - - Opposite side
        
        High Correlation = Lower Diversification
        
        Highly correlation witin asset class
        
        Gov Bonds and Corp Bond
        Inv Grd Corp Bond and High Yield Corp Bond
        
        tend to be influenced by similar economic factors, industry trends, and market sentiment
        
        Lower correlation ACCROSS asset class
        
        Emerging Market and Developed Market
        Gov Bond vs High Yld Corp Bond
  - - - Definition
      - E(rp)=Sum( WiE(ri))
        
        E(rp)= expected return of the portfolio
        
        E(ri)=expected return of asset i.
        
        Wi= percentage of the total portfolio value invested in Asset i.
      - ό (p)= Portf variance