Portfolio Management Concepts Essay

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Portfolio Management Concepts The concept of portfolio management is a lucrative sword as not only it offers not only returns but the investor also have to face risk associated with it. If the Investor is willing to earn higher return he has to associate higher return with higher risk. For an investor to diversify away the risk he can follow diversification rule. Under diversification, investor can include the assets which are not correlated to each other and thus by including these asset classes he can diversify away the risk. However, in terms of the risk there are two kinds of risk i.e Unsystematic Risk and Systematic Risk and an investor can diversify only unsystematic risk by following diversification rule including the asset classes…show more content…
However, in comparison to benchmark return, we can conluded that portfolio has still not achieved maximum diversification and it need to follow portfolios on efficient frontier that offers him maximum return with benchmark standard deviation of 0.72% on daily basis. Answer 3) Behavior Analysis relates to the concept of Behavior Finance which is a branch of investment world that explain the stock prices anomalies because of psycholigical behavior of investors. In other words, behavior analysis reveals the pattern of how the market outcomes and an investors investment decisions are influenced by the prevailing market information structure and characteristc of market participants. It considers the psychological bases for percieved investor behavior that creates some degree of systematic mispricing of securities and may explain anomalies that tend to refute the efficient market hypothesis. Following are some bias related to behavior finance: Overconfidence Bias: With respect to growing companies, researchers have presented evidence that KMK Investments overconfidence in their earnings forecasts and their high estimated growth rate of earnings lead them to overemphasize the impact of good news and to underestimate the negative value implications of bad news. This may be the reason that the portfolio was
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