Horizon Analysis

AAA

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.

VIDEO

RELATED TERMS
  1. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  2. Holding Period Return/Yield

    The total return received from holding an asset or portfolio ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity ...
  4. Portfolio Return

    The monetary return experienced by a holder of a portfolio. Portfolio ...
  5. Anticipated Holding Period

    The time period for which a limited partnership expects to hold ...
  6. Risk-Adjusted Return On Capital ...

    An adjustment to the return on an investment that accounts for ...
Related Articles
  1. Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

    We look at three risk factors that best explain the bulk of equity performance.
  2. Personal Finance

    A Career In Real Estate Portfolio Management

    Find out why this job more closely resembles the role of a CEO than an asset manager.
  3. The financial services industry has created investment products to help investors match their portfolio holdings to an appropriate time line.
    Investing News

    Using Time Horizons In Investing

    Time-horizon investing is all about planning. You need to think about your goals and select investments based on the amount of time you have until the goal must be funded.
  4. Investing Basics

    Portfolio Management Pays Off In A Tough Market

    A clear rebalancing strategy is a critical component of portfolio management, particularly in tough economic times.
  5. Investing Basics

    Portfolio Management For The Under-30 Crowd

    Young investors have some advantages over their older counterparts. Read on to learn how to build a portfolio that will grow with you.
  6. Mutual Funds & ETFs

    Financial Advice With Zero Return

    Discover how a recent study indicates that many advisors do not increase investment returns.
  7. Retirement

    Portfolio Management Tips For Young Investors

    Discover how to start building a portfolio and how to manage it for the best results.
  8. Professionals

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  9. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  10. Investing Basics

    Online Portfolio Management, DIY or Fee-Based Financial Advisor: Which Is Right For You?

    Should you use an online financial planning service, or do professional, fee-based financial planners justify their higher costs?

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center