1. Welcome to the course
Hi! Do you think that successful traders and portfolio managers are just lucky?
2. Is investing monkey-business?
Do you believe that a portfolio of stocks selected by a blind-folded monkey is optimal? Well, I don’t. And I hope that by doing this course, you will find out how portfolio analysis in R can add value to your portfolio management.
3. Who am I?
My name is Kris Boudt. I am a Professor of Finance at the Free University of Brussel and Amsterdam. I have more than a decade of experience in solving investment problems using the R language.
4. Who am I?
Besides my teaching and research, I also advise investment companies about best practices in portfolio management.
5. Diversify to avoid losses
The advisory is about balancing risk and reward in their investments. My baseline recommendation is to take investment decisions seriously and to be aware of the risks involved in investing. Whenever you buy a stock or bond at some price, this price will change in the future. If it increases, you make a profit. If it decreases, you make a loss. It’s the expectation of gains that needs to be balanced against the risk of losses.
6. Simple tricks
There are two simple tricks to reduce the risk of suffering large losses.
The first one is to seek portfolio risk diversification. This means that one should avoid investing in one single asset, but instead invest in many different assets. Such a combination of investments is called a portfolio.
When I review portfolios, I often find that by choosing more intelligent combinations of investments, it becomes possible to increase the portfolio’s expected return and reduce the risk.
A second golden rule in investing is to always test the portfolio strategy on historical data. And, once you are trading the strategy, to constantly monitor its performance.
7. Simple tricks
For this reason, DataCamp is one of the best ways to learn portfolio analysis: I will teach you the theory in the videos and provide you the R instructions to do the portfolio analysis in practice.
8. Course overview
The course proceeds in four chapters. In Chapter 1, I will introduce the basic variables in portfolio analysis, namely the portfolio weights and the portfolio returns. The portfolio weights tell you the percentage of total value invested in each of the assets. The portfolio returns measure the relative increase in portfolio value over the period. I will show you how the portfolio weights and returns are connected and how to do the calculation.
9. Course overview
In Chapter 2 you will learn how to use measures of reward
10. Course overview
and risk to evaluate the portfolio performance. We will be using average returns, volatility, Sharpe ratio, and even downside risk measures, such as the portfolio value-at-risk and expected shortfall.
11. Course overview
Chapter 3 is about the
12. Course overview
drivers of portfolio performance. I will show you how the individual risk and rewards of the different investments in the portfolio interact with each other to determine the total portfolio return and risk.
13. Course overview
Finally, in Chapter 4, I’ll show you how to
14. Course overview
optimize the portfolio weights in such a way that the obtained portfolio cannot be beaten by any other portfolio in terms of offering a higher expected return for the same or lower level of risk.
15. Let's practice!
Altogether, these four chapters teach you to analyze portfolio returns in R, which is a crucial skill to make investment profits without taking excessive risks.