Portfolio metrics
Portfolio metrics are quantitative measures used to evaluate the performance and characteristics of a collection of trades within a trading portfolio. Here are some of the most commonly used portfolio metrics in trading:
Portfolio metrics are like the treasure map for investors, guiding them to hidden gems and ensuring their investments strike gold!
- Diversification Ratio: Measures the degree to which a portfolio’s risk is reduced through diversification.
- Correlation Matrix: Displays the correlation coefficients between different assets in a portfolio, indicating how they move in relation to each other.
- Sector Allocation: The distribution of investments across various sectors within a portfolio.
- Asset Allocation: The distribution of investments among different asset classes, such as stocks, bonds, and cash.
- Turnover Rate: The rate at which assets in a portfolio are bought and sold over a specific period.
Frequently Asked Questions
Quick answers based on this page's topic.
Asset allocation determines how your capital is distributed across different markets like crypto, stocks, or cash. Proper distribution ensures that a crash in one specific sector won't wipe out your entire account, providing a structural safety net for your wealth.
A correlation matrix shows if your different trades are moving in the same direction. If your 'diversified' portfolio consists of five assets that all drop when Bitcoin drops, you aren't actually diversified—you are just holding one giant, high-risk position.
Turnover rate measures how frequently you buy and sell assets within your portfolio. A high turnover rate often indicates an active scalping or day trading approach, which requires higher execution precision and more careful management of commission costs.