DIVERSIVIEW | Portfolio diversification and optimisation
OK, you've found some worthwhile investments to place your money (and your trust) in. What next?
• How do you avoid or reduce unwarranted risks?
• How do you allocate your money so your portfolio return is the best it can be?
Diversiview is top-notch portfolio analysis and optimisation tool designed to help you to comprehensively assess your investment portfolio.
Diversiview lets you dig into your portfolio's performance using risk and return filters. You'll see how diversified your investments are.
Diversiview calculates the best asset mix to minimize risk and maximize returns. Think of it as your personal portfolio wizard.
If you use Sharesight, it's a breeze to import your portfolios into Diversiview.
Each investor aims for high returns on their investments. That is true no matter what the end goal of the investment journey is - be it safety in retirement, buying a house or going on the holiday of the lifetime. Everyone wants excellence and very few investors will be happy with “just enough”. At the same time investors also want to sleep well, and not live with a continuous anxiety over market fluctuations and over the possibility of losing their hard-won money.
How can this be achieved?
An old dictum from the investment world says that “high returns come with high risks, and taking low risks will only give low returns”. But is the choice so clear cut, and is that all that can be done?
Fortunately, there are many more scenarios in between these extreme positions. With the help of the technology, you can find the optimal risk-return combination that works for you. Which means you don’t need to compromise on return nor take higher risks than you want. Whether you are a fan of value investing, fundamental analysis or technical analysis, or any combination thereof, your arduous search and research will likely produce a shortlist of options.
Each investment has its own risk of financial loss. Markets fluctuate and as thousands of investors buy and sell into different investments, the prices go up and down. When prices go up, investors are inevitably happy. When they go down, investors become worried.
Two investments are said to be correlated if their prices go up and down together, that is, when their returns grow together or decrease together. Two investments are not correlated when they move totally independent of each other, and they are said to be negatively correlated when they move in opposite directions at any given time. When one falls the other one grows.
What’s the best strategy to reduce risk?
Harry Markowitz, the father of the Modern Portfolio Theory and Nobel prize winner, proved long ago that it makes most sense for an investor to invest in assets that are worthwhile (they are expected to bring good returns) and are not correlated or, even better, that are negatively correlated. That way, investors can expect to gain at any time as some of the investments will grow when others may decrease.
Conversely, if the strategy is to invest in worthwhile investments that are strongly correlated, it means that the investor can double up on the growth but would also be exposed to the risk of double loss.
It’s very important that you keep an eye on the level of correlations between your investments and understand where you may be exposed to unnecessary risks.
In Diversiview, investors can view the correlations using an interactive, colour coded diagram. This way they can detect if there are any strongly correlated investments in their portfolio that can increase the risk of loss.
Remember, risk in investing is like the ups and downs of a rollercoaster—it's called 'volatility.' When an investment is volatile, its value can change a lot in a short time. That's why we often say 'risk equals volatility.
When building your investment portfolio, remember two key things:
Diversify: Don't put all your money into one investment. Spread it across different types (stocks, bonds, etc.) to reduce risk.
Risk vs. Reward: Understand that higher returns often come with higher risk. Find a balance that matches your goals and comfort level.
The image on the right shows how your portfolio can be balanced to optimise your own level of risk and return.
Diversifying your investments across different asset types(listed securities including stocks, bonds, ETFs, mutual funds etc, unlisted investments, property, cash, term deposits), different industries (e.g., banking, mining, energy etc) or across different geographies (assets from different countries) will increase the chances of finding good investments that react to market events independently from each other.
Diversiview provides an easy, fast and free way to check on your portfolio’s granular diversification.
Diversiview gives you the control. You can see where your portfolio’s risk return position is, determine if that position can really help you achieve your goals, and decide whether you want to improve anything.