This is a finance article. See portfolio for other meanings.

In finance, a portfolio is a collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.

Management

Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected return from portfolios comprised of different asset bundles are compared.

The unique goals and circumstances of the investor must also be considered. Some investors are more risk adverse than others. Mutual funds have developed particular techniques to optimize their portfolio holdings. See fund management for details.

Models

Some of the financial models used in the process of valuation, selection, and management of portfolios include:

• Maximizing return, given an acceptable level of risk.
• Modern portfolio theory - a model proposed by Harry Markowitz among others.
• The single-index model of portfolio variance.
• Capital asset pricing model.
• Arbitrage pricing theory.
• The Jensen Index.
• The Treynor Index.
• The Sharpe Diagonal (or Index) model.
• Value at risk model.

See also

See also: Modern portfolio theory, risk management, banking