Applying Portfolio Efficiency, Ratio Segmentation and Management to Trading

Portfolio Efficiency

The returns an investor receives can be measured in many ways, using a number of techniques that describe the efficiency of a portfolio.  Generating profitable returns is one aspect that is key to success, but the costs associated with generating those returns is an aspect of market analysis that sometime goes unnoticed.  For many investors, risk adjusted returns are extremely important as excessive volatility in a portfolio can be considered problematic, which might mitigate the attractiveness of the portfolio.

In addition to strong risk management techniques, which for many traders are the use of Binary Options which have a predetermined risk reward ratio, traders need to consider the extent of the volatility associated with a specific strategy which can be evaluated by using a number of statistical metric which can help determine robustness of the risk-adjusted returns.  Some of the more well-known statistical ratios are; the Sharpe Ratio, and the Information-ratio.  Each of these ratios supplies an investor with a benchmark to judge the risk-adjusted returns of their portfolio. Continue reading "Applying Portfolio Efficiency, Ratio Segmentation and Management to Trading"

Trading Using Monetary Policy Analysis

Monetary policy, which is also known as interest rate policy, describes the actions or in-actions of a country’s central banks.  Interest rate policy generally focuses on maximizing price stability and growth.  The central bank of a country is considered the institution that controls a countries currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries.

Each central bank has guidelines that are mandated by their legislature.  For example, in the US, the central bank has a dual mandate which is to maximize price stability and employment.  Other central banks, such as the European Central bank, have only one mandate which is price stability.

Central banks often spur growth and employment by reducing interest rates, making it easing for banks to lend money at reduced rates.  Lower interest rates also increase liquidity, and make purchasing riskier assets a more attractive alternative than holding low interest baring government notes. Continue reading "Trading Using Monetary Policy Analysis"