Horizon Analysis

Definition of 'Horizon Analysis'


The analysis of a security or portfolio’s total returns over a period of time, referred to as the investment horizon. Horizon analysis allows an investor to assess performance under different levels of risk, market yields and return expectations. This is referred to as scenario analysis. The horizon date chosen is dependent on the needs of the analyst, and can correspond to a business cycle or maturity date.

Investopedia explains 'Horizon Analysis'


Horizon analysis is considered more realistic than simple yield analysis. When combined with statistical analysis, specifically the distribution of returns based on scenarios, horizon analysis allows investors to estimate expected and unexpected losses. This allows a portfolio manager to set aside funds if returns have a higher probability of being low.

Making assumptions about how yields and rates will behave in the future, and how those yields and rates will affect an investment or series of investments, can be daunting for portfolio managers. Because of the complexity in making such assumptions, managers may look to other standard financial measurements, such as yield to maturity. Horizon analysis makes this task simpler by allowing portfolio managers to break down expectations into scenarios. This is made easier by the use of sophisticated technology, which can allow more minute adjustments to be taken into account.



Related Video for 'Horizon Analysis'

comments powered by Disqus
Hot Definitions
  1. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  2. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  3. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  5. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  6. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
Trading Center