Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Using a Technical analysis is equally ineffective since this analysis would not necessarily focus on the financial statements of the company, but rely on trends in the economy, price trends and overall market tendencies to predict where a particular type of stock will go. While this strategy is risk aversive in general, the point becomes moot again as the overarching quality of all stock in this economy rise and fall together.
In Market B. however, the overall diversification of stock returns makes the possibility of creating a better risk averse portfolio much more likely. Both techniques of investing previously discussed work extremely well in this economy for both high risk and low risk strategies. Using a fundamental analysis one can make more valid assumptions about the future of a company from its financial statement. While any company health is certainly partially regulated by economic trends, in Market B. there is a better chance that a health company can survive extreme lows in a bad economy yet thrive in a good one. In...
A technical analysis is also quite useful in gaugingin risk on many levels. While some companies in certain economies may flourish, others may not, so by predicting trends in the overall economy one can ferret out those companies that would be more successful than others given the same circumstances.
In Market A diversification of holdings would most certainly have a minimal impact on overall risk aversion, whereas in Market B. diversification would be the key to mitigating risk in unfavorable market conditions. If we look at reality for a minute we see that stocks that rise and fall together will most certainly crash together as was evidenced in the past (Lopus, 2005). In Market B. diversification will more greatly mitigate risk than in Market A.
References
Lopus, J.S. (2005). The Stock Market Crashes of 1929 and 1987: Linking History and Personal Finance Education. Social Education, 69(2), 70-81
McMenamin, J. (1999). Financial Management: An Introduction. London: Routledge.
("Stock Portfolio," 2011) What stocks performed the best and worst? The stocks that performed the best include: EFX, MCD, AAPL, SBUX, PETM and GMRN. The positions that were underperforming the others include: MSFT, AXP, TIF and JPM. Stocks for given portfolio were selected randomly what would you've done differently? There would have been a focus on having firms that pay higher dividends and growth. This is when the total returns in the portfolio
Because of this, I would expect that U.S. Energy would have performed better, but that has not been the case. None of the individual holdings are overly dependent upon energy costs, such as we would see in the airline industry, so the performance of the portfolio does not seem to have been overly affected by the rise in energy prices. The proper approach to investing involves diversifying, not only across
Does having two companies' stock increase the expected value of your portfolio? If not, then why is diversification a good thing in this example? Having the portfolio which consists of two equal stocks doesn't increase portfolio's value, which will remain the same ($105,000), yet it decreases the risk of winding with nothing, as the probability of winding with nothing in case portfolio consists of two companies' stocks is twice smaller
Diversification How important is it for you to diversify your investment portfolio? How would you diversify your investment portfolio? Although 'the stock market' is often spoken of as a collective entity, in reality it is made up of a many different types of industry subsets. Furthermore, stocks are not the only assets investors should have: bonds, CDs, and more conservative and risky investments make up the full 'buffet' of available ways to
That being said, the overall risks to the portfolio will vary, depending upon the type of stock that is purchased and how much diversification is being utilized. ("What are the Main Types of Stock.," 2010) How much does a stock contribute to the return of a portfolio? Historically the average return of the S&P 500 has been 9.8% a year. (Swedroe, 2009) However, the overall impact of the return will depend
It is expected that the bond will mirror the performance of the S & P. 500. ("Transaction History," 2010) November 24, 2010 On November 24th several more new purchases would take place to include: General Motors, Berkshire Hathaway, the Fidelity Immediate Government Fund and the Strategic Advisors Income Fund. Stocks General Motors was selected, because it could help to provide the portfolio with above average growth. The results were that that stock would