1.what is a portfolio

An investment portfolio is a collection of stocks, bonds, financial derivatives, etc. held by investors or financial institutions.

There is an old saying that don’t put all your eggs in one basket. If you put all your money in one stock, then your income and risk will depend entirely on the performance of this stock. This is not a very wise choice. Once you see Be wrong and you will lose a lot.

So the best way is to invest in multiple assets, such as real estate and stocks, and hold multiple stocks at the same time, so that even if you make a wrong bet, you will not lose your money. Simply put, portfolio benefits help investors avoid disastrous investment outcomes.

The calculation of the income of the investment portfolio is relatively simple. You invest 60,000 yuan in Apple stock and 40,000 yuan in Microsoft stock. After one year, Apple stock has a 20% return, and Microsoft stock has a 12% return. Then your comprehensive return on investment is 16.%: 0.6*20+0.4*12=16.8.

2.Investment Alpha and Beta

Beta: Refers to the correlation of a portfolio with a market index. For example, let’s say you bought BABA, the stock of Alibaba. Although BABA’s business is mainly in China, the stock markets of China and the United States are related. BABA may also fall accordingly, so there is a correlation between BABA and the US stock market index such as the S&P 500, so this correlation is called the Beta coefficient of BABA relative to the S&P 500. Of course, this correlation does not only look at one day, but counts the daily rise and fall of two assets in a period of time, obtains two arrays, and then calculates the covariance.

Therefore, beta is actually the market sensitivity of the investment portfolio. For investment, when the market is good and the market as a whole is rising, generally choose a portfolio with high beta; when the market is bad and the market as a whole is falling, generally choose a portfolio with low beta portfolio.

Alpha: Assuming that the beta of BABA and the S&P 500 is 0.6, that is, if the market rises by 10%, BABA rises by 6%, and the market falls by 10%, BABA should also fall by 6%. Now after a period of time, I found that the S&P 500 has risen by 10%, but BABA has risen by 20%, so this 14% is the extra income of BABA surpassing the S&P 500, called Alpha income.

Modern investment portfolio is a very complicated theory, and beta and alpha are only statistically calculated data. However, these two terms are widely used in the fund industry. For example, fund managers will introduce the beta of their investment portfolio and the relative How much alpha can outperform the broader market.

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