Risk contribution in a T-Advisor portfolio

How to understand the figures of my portfolio to obtain better results? (II)


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We have already written about some relevant figures to manage your portfolio, as the performance evolution, the weight of the assets and the relationship between performance and volatility. There are three other parameters to take into account for your portfolio. They are related to the diversification of the portfolio assets. It is always said that diversification limits risks and helps avoid high losses. It depends on how it is considered. For instance, you can have several assets, but it does not mean that the whole portfolio is diversified. On the contrary, it can have a low diversification, if the assets are very correlated. In this case, a movement in one of your securities has effects in the others. Another relevant item to obtain from your portfolio is the risk contribution. These figures explain the proportion of each security to the whole risk of your portfolio. This analysis helps take decisions, as selling a share or a fund if the risk is high related to the performance that it provides to the whole investment. Risk contribution in a T-Advisor portfolio In the chart above, it is possible to see the different risk contribution of each share to a specific portfolio focused in Germany. If we compare this chart with the weight of each asset, IWKA is the largest, following by Dialog Semicon. However, both have provided the highest unrealised gains (59% and 46%, respectively). On the contrary, BB Biotech AG has unrealised losses of 78.5%, but the weight is 1.83% of the portfolio. That is why its risk contribution is so low. Finally, the last measure about diversification is diversification benefit. We have already commented about it, but it is interesting to connect this figure with others to analyse the portfolio. Diversification benefit quantifies how much you earn or how much you avoid losing if you diversify your investments. Diversification benefit in T-Advisor As the table shows, a diversified investment protects against higher risks, if the investment cycle is negative for you. In this case, the investor is avoiding losing a 24% more. In T-Advisor, you can also check your diversification in the “follow up” tab of your portfolio report. diversification follow up in T-Advisor As you can see in both articles, it is necessary to analyse your investments from different points of view and connecting different figures to understand the quality of your portfolio. If you do not understand some of these figures, you will have to deal with troubles for your money.

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