portfolio management techniques by ceis review
Post on 27-Jul-2015
110 Views
Preview:
TRANSCRIPT
Learn Some Portfolio Management Techniques to
Manage Your Investment
Thanks to Harry Markowitz – a renowned Noble Prize winner in
economics – that the world now has become familiar with the theory
of portfolio. It was Markowitz who suggested that investors can
indeed secure their investments by leveraging different price
movements. His was the goal of diversification.
Different Portfolio Management Techniques
There are two major techniques to manage the portfolio –
aggressive and passive. Interesting aspect of both these
techniques is that they are not dependent upon the market
knowledge. But, they are rather dependent upon diversification of
assets, duration, industry, capitalization and cash cycles. The only
difference between the two strategies is that passive expects the
return equal to the market assuming that market is highly efficient,
whereas aggressive technique aims for a return above the market
assuming the inefficiency of the market.
Portfolio Stress Testing
Stress testing per se is a system to test the stability of a particular
system, in this case the system of portfolio of the investor. This type
of testing is employed to check whether any particular system can
work inspite of abnormal conditions. In other words, it checks the
limits of the system and the outcome. Generally, when it comes to
portfolio stress testing, points to be considered include: how the
portfolio reacts in case of equity markets crash, GDP fall, change in
interest rates etc. The experts decide a certain limit for this test and
that is how it is carried out.
CRE Stress Testing
Last year, the he Office of the Comptroller of the Currency, U.S.,
released the guidance for Community Bank Stress Testing. It gives
the institution an example of a kind of a stress test framework that
can be used to test the stress of commercial real estate investment.
The purpose of this guidance is to make the institutions analyze
their own risk appetite and tolerance. By this process, they can
assess the possible impact of the difficult situations as well.
Benefits of CRE Stress Testing
One of the major benefits is that it prepares the institutions to cope
up with any emergency. It also boosts up the confidence and raises
the level of awareness about the possibility of the adverse
situations. This consequently not only helps the institution plan in-
advance but also maintain the necessary capital flows.
Methods of Stress Testing
This process does not need to be complicated always. It can range
from a simple excel sheet analysis to a bit more advanced model.
Methods therefore should depend upon the size and the risk of the
portfolio in question and the complexity of the bank.
Find more information at http://www.ceisreview.com/ or call us on
888-967-7380
top related