Understanding Portfolio Analytics—and How to Make Them Work for You

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Most investors hold at least 15-20 stocks in their portfolios—and many hold a lot more. With the sheer number of holdings, it can feel like an impossible task to analyze your portfolio. That’s why you need to use portfolio analytics.

To help you get a better sense of how analytics can help you make the most of your investments, it’s important to understand the ins and outs of these important tools.  

What are Portfolio Analytics?

Portfolio analytics provide insight into your investment holdings, helping you to understand your performance, allocation, diversification, and risk level.

In many cases, portfolio analytics compare your investments with a benchmark. The appropriate benchmark depends on your investment strategy. For someone who is 100% invested in tech stocks, a tech ETF would be a relevant benchmark because variances in performance could be attributed to stock picks. If you have all large-cap stock investments that are not overly concentrated in any one sector, the S&P 500 may be an appropriate benchmark.

Let’s briefly look at five commonly used portfolio analytics:

  • Beta: measures the volatility in a portfolio.
  • Alpha: the excess returns earned above the benchmark return.
  • Volatility: looks at the standard deviation of returns.
  • Valuation metrics: these include price/earnings and price/book, among other metrics.
  • Sector breakdown: how are your investments weighted by sector?

There are many other portfolio analytics, but the above five are a good starting point.

How to Leverage Insights to Optimize Portfolio Performance

By using portfolio analytics, you unlock countless possibilities for your portfolio. You can start by getting a holistic view of your investment holdings, and seeing how your portfolio compares to its benchmark. 

If your beta is higher than the benchmark, for example, it could mean that you are taking on an unnecessary amount of risk to achieve your current expected returns. Or let’s say your portfolio’s price/earnings ratio is much higher than the market average, but your stocks aren’t seeing higher revenue or earnings growth than the broader market; that could mean that your portfolio is overvalued.

Whatever the case may be, the first step is to get a clear picture of what’s going on with your portfolio. From there, you can consider making changes to your portfolio to maximize your expected returns for your chosen level of risk. 

In some cases, you might have to adjust your portfolio because one of your stocks has performed too well. For example, if you invested 10% of your portfolio in a high-flying growth stock and it increased 400% in value but the rest of your portfolio stayed flat, the stock would now represent more than 35% of your overall holdings, potentially bringing higher risk to your portfolio. 

What’s the answer? Rebalancing. Through rebalancing, you buy or sell assets to return your portfolio to your desired allocation. You can rebalance your portfolio whenever you want, but monthly and quarterly are the most common intervals.

How Do You Get Access to Key Portfolio Analytics?

While it’s possible to calculate portfolio analytics on your own, it would be an extremely laborious process… and you’d have to continue doing it regularly because the data changes so quickly.

With a premium investment research platform like Yahoo Finance Plus, however, you gain access to portfolio analytics that are always up-to-date. The service provides a dashboard that gives you a quick view of your portfolio analytics, and granular data is never more than a few clicks away.

Yahoo Finance Plus also comes with other benefits, including investment ideas and research reports. To determine if it’s right for you, check out their subscription plans with a 14-day free trial offer

Gaining a clear understanding of portfolio analytics can help you remove the guesswork from investing and create an optimized portfolio that is likely to stand the test of time. With the right data at your fingertips, you can make investment decisions that are right for you.