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 that are not correlated with other and the risk left will be systematic risk, which is not possible to diversify even if the investor includes all the securities available in the investment universe.
For KMK Holdings, diversification is an important part of portfolio construction. Considering the market conditions which have grown highly risk on account of low interest rates and high volatility, the company in order to diversify away the risk will be using the asset allocation strategy by investing in Stocks, ADR’s and ETF in a rationale proportionate manner. The portfolio consists of 15 stocks, 3 ADR and 1 ETF, the net worth of portfolio at the time of writing was $103892.97 while the total borrowing power is $108931. The portfolio have earned a return of 3.89% on overall basis while on daily basis the return is 1.35%. However, the portfolio has not outperformed the S&P 500 benchmark as the benchmark return of 7.67% is not achieved by the portfolio.
Despite of poor performance of the portfolio in comparison to benchmark, the portfolio has still achieved a satifactory diversification by investing in range of asset clases. Had the investor followed only 1 stock portfolio i.e Kaisser Stock, on daily basis the portfolio would have lost 263.58% in value. Thus, by investing in range of asset classes, the portflio had achieved a satisfactory return as by including non-correlated asses in the portfolio it removed the unsystematic risk. However, in comparison to benchmark return, we can conluded that portfolio has still not achieved...