The indexes of shares have a great importance on the financial market, because these own the following duties:
– Education of a base value
– the function of the indication of the price
– the assessment of the investment success (benchmarking)
All these duties can be mastered with the help of the German share index which is also called DAX. Therefore, within the scope of the port folio management the achievement this is measured in DAX. On account of the fact that actively controlled port folios are less performance-strong than comparatively the market index this leads to the fact that investors are designed the index to reproduce by the so-called share port folios. This process is also called also Index-Tracking. Another theoretical beginning is the Capital Asset Pricing model (CAPM) which is designed also on it to minimise the diversifiable risk.
Therefore, the indexation at protecting is aimed on it from a nominal size as for example of clue around the real size and at settling the effects of the inflation. In case of the consideration of DAX which exists of 30 index values appears that then merely a restacking of the port folio is necessary if the composition of the clue changes.
What is the German share index (DAX)?
The German share index is used on the security stock exchange by Frankfurt to indicate 30 biggest enterprises which have the highest turnover. DAX was introduced in 1988 and has developed since this time in the international and national frame to the most important index.
Except classical DAX there is on the financial market still the MDAX which indicates 50 in the following bigger enterprises and the SDAX which indicate 50 nächstgrößeren enterprises. In the TecDax 30 most important enterprises of the technology branch who are not taken down in DAX are led. Besides, there is, for example, still the ÖkoDax which leads enterprise with renewable energy as well as DAX 100 which presents 100 enterprises which own the highest liquidity. Besides, in the international frame there are important indexes like the Nikkei in Japan or Dow Jones in the USA.
What is a port folio strategy?
A port folio strategy is used for it to effect an arrangement successfully. Within the scope of the strategy a huge number is acquired by the securities which are complementary. Through this the risk of a big loss which can happen by the burglary of a course of a share is minimised. Besides, a port folio strategy a good possibility very high profits is to be able to achieve. In general the strategy of the port folio is sketched in orientation towards the whole market. The base of a port folio strategy is therefore the average of all existing shares. The origin of the port folio strategy leads back to the American economist Markowitz.
The port folio strategy in capital markets
The economist and Nobel Prize Laureate Harry M. Markowitz is valid as a founder of the port folio theory which belongs in capital markets after today to the repertoire of property administrators. The theory developed by Markowitz in 1952 enables to close with the help of specific acceptances about investors on the behaviour this in the course of an investment. For example, fund managers or assurances use his apprenticeships for the today's time to make decisions on arrangements.
Harry M. Markowitz was aimed at reaching on it from a well-balanced relation from risks and chances. On account of the fact that all securities or arrangements widererwarten can develop Markowitz follows the differences of the experience values. On this occasion, he considered developments down as well as upwards, so that the relation can be calculated by risk and chances of an arrangement. Moreover, the economist dealt with the interaction of different securities, so that the investment can be exactly planned. With depots of the securities which tied up loss and yield risks show it is not to be intercepted possibly the losses by profits from another investment. Therefore, advises to carry out Markowitz in addition investments which do not stand with each other in connection. The basic statement of his theory amounts therefore to the fact that investments are best of all for the port folio if these are independently of each other.
In practice this means that it is to be recommended to acquire possibly many different national and international shares and not to buy many shares of a single enterprise. An empiric observation showed that with the help of this strategy the slightest losses and on an average to the highest profits can be achieved. An exception from this shows, nevertheless, the boom of a specific share which leads with an exclusive investment in this in addition a very high profit to achieve.
The specific feature with the port folio strategy is that this can be used not only on the stock market. The profit risk relation can be optimised by the investment in for example raw materials, shares, real estate funds and loans still more specific.
What does mean port folio?
The port folio shows the whole property of an enterprise. This property can exist of different assets as for example real estate, shares or raw materials. The specific feature of a port folio is that the strategical construction leads this to the fact that the risks are minimised by investments in the finance area. The minimisation of the risk is achieved by a dispersion of the investments.
The identification numbers of the port folio strategy
In the management of the port folio identification numbers are used for it to determine the risk and the single values of arrangements. By the attention of the following identification numbers:
– Alpha
– Beta
– R2
– Volatilität
– Correlation
if the port folio management can conceive a port folio which considers the possible yields as well as risks.
The identification number alpha
On the financial market the concept Alpha calls the profit yield which is achieved by an arrangement in comparison to the market. The profit yield is also called Sharpe-Ratio and arises from the payment of interest of an investment within one year which goes out the concerning investment. To indicate this in an example it would mean that an elective fund has gained ten percent and the interest without risk of the money market amounts to five percent. The profit yield amounts therefore to five percent. Next the profit yield with the risk is qualified and proves the Volatilität. If the identification number alpha is positive, is spoken of a profit yield. By a development of the index in parallel with the fund alpha amounts to zero by which is expressed that no excessive yield was achieved. If the investor with a fund achieves a lower yield than that of the comparative index, the identification number alpha is negative.
The identification number beta
The residuale rest risk of an arrangement is called by the identification number beta. With the help of the identification number beta the variation can be determined therefore by an arrangement in comparison to the whole market. With the port folio management beta is used therefore for it to reach an optimum risk dispersion of the enterprise sport folio. If beta is more than one, this speaks for an arrangement susceptible to variation. If the identification number beta amounts to one, the arrangement moves in parallel with the whole market. If beta is smaller one, the arrangement is a little susceptible to variation with a comparison with the whole market. A special case is a negative beta identification number. On this occasion, it is indicated that the arrangement develops exactly vice versa to the whole market. This means in practice that the arrangement sinks if the whole market rises. Because within the scope of the port folio management variations are not welcome, nevertheless, mostly, the port folio management is aimed at reaching on it from a low beta factor. Nevertheless, within the scope of the more aggressive port folio management it is the case that arrangements with a high beta identification number are selected.
The identification number R2
The identification number R2 (R-Square) is used by investors for it to indicate the respect between the port folio and the Benchmark. R2 is therefore a correlation coefficient which shows the movements of a fund in a proportional portion. These movements can be taken from the authoritative index. If R2 100 amounts meant to this that the fund develops in the same manner like the index. If R2 is, for example, 90 this means that 90 percent of the movements of the fund are due to the development of the index. An investor who already owns a fund with high R2 would like to find moreover a counterbalance which is dependent of less on the development of the index to be able to strew the investments in the best way possible.
The Volatilität
The identification number Volatilität gives the width of all price fluctuations of a security in the finance branch. On this occasion, is valid that a Volatilität is high if the price of a security clearly moves up and down. Therefore, a low Volatilität is given if the security to smaller variations put under is. As a rule the Volatilität is determined for a year. The identification number is used mostly for it to define the measure of the risk. Because the Volatilität with the risk can be equated meant this that securities with high variations are defeated by a big risk and that with smaller variations to a small risk. Nevertheless, besides, it should be considered that high variations can stand for big losses as well as big profits. Nevertheless, equating of risk and Volatilität can be also dangerous, because the prices of securities can refer to the past and develop in future counter-rotating.
The correlation
The identification number correlation is used in the finance branch for it to identify the respect of the developments of a value of two arrangements. Therefore, the correlation can find out how the index of the whole market can be put to a security in relation. A high correlation is reached if the course of a security moves in parallel with the index. Therefore, for an investor it is to be built up advantageously a port folio with a deep correlation, because, on this occasion, the potential loss is caught. If the correlation reaches a value from zero, the development of the security is not dependent on the index. With a value of one the growth of the security behaves in parallel with the index. If the correlation below one amounts, the securities and the index behave contrary. This means that the value of the arrangement rises if the index sinks.
The reduction of the failure risk – the diversification
So that an investment with a low risk can be effected, the dispersion of the arrangement is recommendable. This dispersion is called in the technical language also diversification. Therefore, investing in merely one single share is accompanied by a big loss risk, while the investment can clearly minimise the risk in several shares.
A diversification can be carried out according to different criteria. Moreover count:
– the diversification after sectors / regions
– the diversification after investment classes
– the diversification after single values
The diversification after sectors / regions
This diversification is based on the investment in shares of different regions or sectors. This means that the investor should put his property, for example, not only on American shares, but also should consider shares from Europe or Asia. Also investing in only one single sector as for example oil is a risky underpinned.
The diversification after investment classes
By this diversification the question into which investment class an investor would like to get is elementary. On this occasion, there is, for example, the possibility in shares to invest loans, real estate or raw materials. Moreover, it is a matter of analysing how much liquid means and foreign currencies an investor would like to keep.
The diversification after single values
According to expert's opinion an optimally diversified depot should include in about 30 single values. On this occasion, an exception is investing in traded on the stock exchange funds and classical funds, because, on this occasion, less single values are needed. Beside the number of the single values the size of the position is also important, because this should be always weighed out. The lump risk is minimised by a well-balanced position size. This risk is reached when a share reaches more than ten percent of a depot. The wide dispersion reduces therefore the risk of investments, however, also the height of the potential profit. Besides investors should pay attention to the fact that the diversification is not too high, because, on this occasion, the danger passes the overview to lose.
Tips with the Konzipierung of a structured port folio
If an investor takes up products in the structured port folio, this should find out about the behaviour and possible scenarios this straight. This forms the base to be able to estimate a new arrangement in the best way possible. Therefore, in case of the consideration of the decay of an arrangement the investor should consider the Worst Case, the neutral and positive development.
So that the arrangements can be optimally strewn, the following scenarios should be roofed:
– What happens with an interest increase with my port folio?
– How do political riots within countries with high raw material occurence affect my port folio?
– What happens within the scope of a financial crisis with my arrangements?
If the called scenarios have a big effect on own port folio this is to be thought about a reorganisation.
Except the distribution of the arrangements after class, region / sector and single values the factor is also to be considered time, because structured arrangements have different terms. Therefore, it is to be recommended to acquire arrangements which not everybody run out at the same time. The investor profits, for example when a graded purchase of Calls "At the money" occurs and the share price sinks, because, on this occasion, a lower future exercise price is formed. With an acquisition of Calls "en bloc" and a sinking share price are nearly worthless the arrangement. Therefore, as a principle is valid that structured arrangements have a stabilising effect in the port folio and lead to a long-term success in the port folio management.
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