Security Analysis and Portfolio Management with Process

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Security Analysis

Security analysis involves the evaluation of tradable financial instruments to determine the value of assets in a portfolio. So, the main goal of security analysis is to calculate the value of various assets and understand the effects of market fluctuations on these assets.

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Security Analysis and Portfolio Management with Process security analysis and portfolio managementprocess of portfolio management  Definepedia


Portfolio management comprises the selection of securities for investment and the revision of the composition of securities in the portfolio. The portfolio management process starts with a specific style or process of investment. – M. Ranganatham 


Security analysis is the initial phase of the portfolio management process. This step consists of examining the risk-return characteristics of individual securities. – S. KEVIN 

Security analysis and portfolio management are two essential components of wealth creation through investment in securities.

Types of Security Analysis

There are three primary types of security analysis:

Fundamental Analysis

This type of analysis evaluates securities using fundamental business factors. Such as financial statements, current interest rates, and competitor’s products and financial market data.

Technical Analysis

Technical analysis focuses on forecasting price trends by analyzing past price trends and market data.

Quantitative Analysis

This type of analysis uses quantitative data to analyze securities.

The main difference between fundamental analysis and technical analysis is that the former uses financial statements, competitor’s market data, and other relevant facts, while the other focuses on price trends of securities.

Security Analysis and Portfolio

Portfolio Management

Portfolio management deals with managing various securities and creating an investment objective for individuals. 

Basically, it involves selecting the best investment plans for an individual, aiming to guarantee maximum returns with minimum risks.

Portfolio management is typically done by portfolio managers who, after understanding the client’s requirements and risk tolerance, design a portfolio with a mix of financial instruments so that they offer maximum returns for a secure future.

Portfolio Theory

The Portfolio Theory, proposed by Harry M. Markowitz suggests that portfolio managers should carefully select and combine financial products on behalf of their customer to guarantee maximum returns with minimum rate/chances of risks.

Basically, this theory helps portfolio managers calculate the amount of return and risk for any investment portfolio.

Pricing Theories

There are several pricing theories in portfolio management, such as:

CAPM (Capital Asset Pricing Model)

CAPM is a frequently used model. So, that assesses an asset’s expected return based on its systematic risk (beta) and projected market return.

Arbitrage Pricing Theory (APT)

APT is a multi-factor model that assesses a security’s expected return based on its sensitivity to different macroeconomic conditions.

Fama French Three Factor Model

Basically, this model extends the CAPM so by adding two more factors, namely, size and value, to explain the variation in stock returns.

Financial Derivatives

Financial derivatives, such as futures and options, are instruments used for hedging risks in investment.

Behavioral Finance

Behavioural finance is a new investment theory that adds psychological variables into financial market analysis, questioning the conventional assumption of rational decision-making.

Process of Portfolio Management

Portfolio management is a critical method for supervising a group of investments that satisfy a client’s long-term financial objectives and risk tolerance. 

It entails selecting and managing a portfolio of investments in order to maximize profits while minimizing risk. So, the portfolio management process can be broken down into various steps, which are listed below:


To understand the customer’s financial status, long-term goals, and risk related is the first stage in portfolio management.

So this involves creating an investment policy statement (IPS) that outlines the client’s objectives, constraints, and risk tolerance.

Asset Allocation

Based on the danger that the customer faces tolerance and investment goals. This process can identify the proper allocation of assets in the portfolio. Such as equities, fixed income, and alternative investments.

Portfolio Selection

The portfolio manager combines the capital market expectations with the decided investment allocation strategy to choose specific assets for the investor’s portfolio. Portfolio optimization techniques are often used to determine the ideal portfolio composition.

Portfolio Implementation

After finalizing the portfolio composition, the portfolio is executed. This involves investing in the chosen portfolio of securities or other alternative investments to generate returns. 

Transaction costs, such as taxes, fees, and commissions, need to be considered, as they can impact the portfolio’s performance.

Monitoring and Rebalancing

The portfolio manager is in charge of monitoring the assets and making modifications to the portfolio as needed with the client’s agreement. 

Rebalancing entails altering the asset allocation of the portfolio to preserve the appropriate risk-return profile.

Performance Evaluation and Reporting

The portfolio’s performance is measured against specified benchmarks in the final step of the portfolio management process, and the results are reported to the client. 

This allows the customer and portfolio manager to determine whether the portfolio is on track to meet its goals and make any required adjustments.

My Perspective

Security analysis and portfolio management are essential skills for finance professionals, and understanding these concepts can help investors make informed decisions and maximize returns while minimizing risks. 

Various methods, theories, and tools, such as fundamental analysis, technical analysis, pricing theories, and financial derivatives, can be used to achieve these goals.

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