Stock Analysis Essay Example | Topics and Well Written Essays - 750 words

Stock Analysis - Essay Example Surprisingly, the same investment could pose different influences on the over all levels of portfolio risk. Under-diversification of investments influences portfolio returns and portfolio risk in many ways. Investors in this company rend to follow in the group that refutes the standard finance theory. The theory supports the consensus of portfolios falling under proper diversification. Clearly, investors appear to focus portfolios in a small number of stocks with a maximum of three and a minimum of two stocks. The tendency dubbed ‘naive diversification’ suffers from the effect of minimum finances. Personal differences in the expected degree of risk uptake make it possible to differentiate between various degrees of risk in search of investors. Calculating the expected value of distribution helps investors to evaluate various levels of returns. Most of them use returns of expected probability distribution of portfolio. Variability around expected value involving probabili ty distribution on returns measures the risk. Standard deviation and variance remain the most accepted measures of variability. Harmonizing the choice of asset mix constituents remains another essential factor that determines portfolio return/risk as a characteristic that requires through evaluation during the construction of portfolio. The criteria applied in the choice of diversity levels of portfolio. Bonds that receive lower ratings in the ratings undertaken by official rating agencies such as Fitch are riskier investments compared to those that receive higher ratings. Bonds with lower ratings include small cap bonds while those that receive higher ratings include state treasury bonds and large cap bonds among many more.The context presents a situation where a clear difference must exist between the ability of the investor to take risk and his or her willingness to take part in the risk. Does the current risk profile