How to Analyse and Track Your Portfolio Performance?

In this article, we will explore

• What Steps Should You Take to Perform Portfolio Analysis?
• Important Tips to Track Your Portfolio 
• Important Metrics to Analyse Portfolio Performance 
• What Should be the Monitoring Frequency? 
• How Samco Will Help You Ace the Index? 

Portfolio performance evaluation is a crucial aspect of investment management because it enables market participants to check whether their investment strategies are effective or not. When you evaluate your investment portfolio, it’s important to take into consideration risks and returns. A well-balanced portfolio minimises risks, increases returns and protects traders/investors from losses.

What Steps Should You Take to Perform Portfolio Analysis?

Consider following these steps to check how your investment is performing:

• Step 1: Have a Clear Idea about Your Financial Goals

First and foremost, you must have a definite financial objective. It will help you identify ideal investment options. You need to align your expectations with the expected returns from the investment. Synchronisation vis-à-vis risks, returns and market factors will help you find the right investments.

• Step 2: Formulate a Deployment Strategy

It’s important to decide on a deployment strategy and invest in assets accordingly. But, you should not stop at that. You must decide the benchmark to compare your portfolio with, the tools to analyse your investment portfolio and the frequency of measuring your portfolio performance.

• Step 3: Check Portfolio Performance Regularly and Make Changes

After a certain timeframe from your investment, you need to evaluate your portfolio performance to check whether it’s on its way to meeting financial objectives or not. You need to accommodate shifts in financial priorities, if any, into your investment strategy. If your asset allocation, financial goals or market condition has changed, you should rebalance your portfolio.

Important Tips to Track Your Portfolio 

Beginners may wonder why regular tracking/monitoring of stock market investments is needed in the first place. The answer to that is that monitoring portfolio performance is necessary to stay on track with your investment strategy. If the weightage of assets changes, you will buy/sell assets to readjust them. Here are some useful tips to track your portfolio:

• Know the latest news of a company

Many factors can influence the performance of stocks you have invested in, their sectors or the industry. Some of these factors are social, economic, political and macroeconomic.

• Check its quarterly performance results

Review the performance of a company keeping in mind the larger economic scenario. If you see that the company is yielding negative results regularly, then you can consider taking decisions accordingly.

• Check the company’s credit rating

When a company has a low credit rating, it indicates that the management is incapable of managing its debts. Investing in stocks of such companies may affect your portfolio performance.

• Keep track of corporate announcements

Many events such as mergers or acquisitions, new manufacturing facilities, and changes in senior management can influence the price of company stocks.

• Make sure you know about shareholding pattern changes

When promoters increase their stakes in a company, it indicates that the company has a high growth potential. If promoters withdraw, there is cause for concern which you need to analyse.

Important Metrics to Analyse Portfolio Performance 

You can use various financial metrics to evaluate the performance of your investment portfolio and its individual constituents. While the total returns remain an important metric, you need to take into account other metrics like the portfolio’s volatility and relative risks. Details are as follows:

• Portfolio Returns

These are the gains or losses generated by an investment portfolio. The expected performance of a portfolio depends on the expected returns of individual securities in it based on a weighted-average basis. Portfolio returns calculation helps to take strategic decisions, compare returns to different benchmarks and re-evaluate the asset allocation if needed.

• Standard Deviation 

Standard deviation is a percentage which indicates how much the returns of an investment are likely to deviate from its average annual returns. It helps to measure the inherent risks of a portfolio. You can use standard deviation to check an investment’s inherent volatility. A higher standard deviation denotes that the investment option is more risky.

• Beta

Beta is a financial metric which measures how sensitive a stock price is when compared to its underlying benchmark. You can use beta to measure the systematic risks of an investment option. If the beta is equal to 1, then the risk level of the stock is the same as that of the market. If the beta is greater than 1, it indicates a higher level of risk and volatility than the stock market. In case it is less than 1 but greater than 0, it indicates that the movement of the stock prices is aligned with that of the market.

• R-Squared

R-squared is a financial metric which indicates the price movements of an investment option and how it's related to its underlying benchmark. In other words, you can use r-squared to check the degree to which a portfolio’s performance match that of its benchmark. A high r-squared—from 85% to 100%—is indicative of the fact that returns from the portfolio are aligned with the underlying index. On the contrary, a portfolio with a low r-squared—70% or less—shows that the portfolio doesn't follow the movements of its benchmark index.

• Sharpe Ratio

Sharpe ratio is a financial metric which shows the risk-adjusted returns of an investment portfolio. In simple words, this financial metric shows how much extra returns you will earn if you take on additional risks over a risk-free rate. You need to note that if you consider the Sharpe ratio in isolation, the metric wouldn't be able to generate much information about a fund’s performance. You need to take into consideration standard deviation to properly understand the performance of a stock portfolio or a mutual fund.

• Sortino Ratio 

You can use this financial metric to determine how much additional returns you will earn for every unit of downside risk taken. The Sortino ratio is similar to the Sharpe ratio but there’s a crucial difference. While the Sharpe ratio takes into consideration the standard deviation as its denominator, the Sortino ratio considers only downside deviation as its denominator. In other words, the Sortino ratio refers to the risk associated with downward price movement. If you have a specific financial goal in mind, this financial metric will help you to take decisions. Moreover, it helps to measure the performance of an investment portfolio. By taking into consideration market volatility and ignoring positive variances, it shows an accurate picture of returns.

What Should be the Monitoring Frequency? 

Often, people wonder how often they should check their portfolios. Many stock market participants check their portfolios frequently. But some experts believe that people should not analyse it at regular intervals to avoid worrying about short-term volatility and making frequent changes. Instead, you can consider evaluating your investments every 3 months. Many experts prefer a quarterly monitoring frequency because often, data gets updated quarterly. Regardless, you should pick a schedule or an asset allocation target to monitor and rebalance your portfolio.

How Samco Will Help You Ace the Index? 

Our mission is to help every retail investor access sophisticated financial technology with which they can outperform the market. Retail traders don’t have a way to track their performance or compare it to index returns. Many traders are not even aware of whether they are beating the index because they don't have access to a single platform offering mathematical and scientific calculators. With that in mind, we offer you the New-Gen Samco App which will help you track your portfolio returns and ace the index.

Samco’s MyIndex will help you to:

• Track your stock market performance

• • With MyIndex, you can track your portfolio performance and ace the market index.

• Compare your portfolio performance

• • You can compare your portfolio performance with that of others in the Samco community.

• Improve portfolio performance with AI-based recommendations

• • Get AI-powered recommendations and personalised insights to improve your financial performance and outperform market indices.

Conclusion

Tracking portfolio performance is important to achieve success in your trading/investing journey. It helps you to stay on track with your investment strategies and change your asset allocation when necessary. You can download the Samco App which will help you to ‘Ace the Index’. With its customised insights, AI-based recommendations and other sophisticated features, you can track the performance of your investment portfolio and make the necessary changes for success. So what are you waiting for? Join Samco today and start your stock market journey with confidence. Click here to open your free Demat account with Samco now.