Portfolio and Performance
34 lessons in this track so far, in the order we suggest reading them.
Performance Metrics
IntermediateMeasuring Returns and CAGRLearn how to measure trading and investment returns correctly: simple and log returns, CAGR, arithmetic versus geometric averages, and money weighted returns.IntermediateSharpe RatioThe Sharpe ratio measures return per unit of risk. Learn the formula, how to annualise it, what counts as a good Sharpe ratio, its limitations and common mistakes.IntermediateSortino RatioThe Sortino ratio divides excess return by downside deviation, penalising only harmful volatility. Learn the formula, a worked example and when to prefer it.IntermediateCalmar and MAR RatioThe Calmar and MAR ratios compare annual return with maximum drawdown. Learn the formulas, how they differ, a worked example and their strengths and weaknesses.IntermediateOmega RatioThe Omega ratio compares the total of returns above a threshold with the total below it, using the whole return distribution. Learn the formula and how to read it.IntermediateWin Rate and Payoff RatioWin rate and payoff ratio together decide whether a strategy makes money. Learn how to calculate both, the breakeven formula and why high win rates can mislead.IntermediateProfit FactorProfit factor divides gross profits by gross losses to show whether a strategy makes more than it loses. Learn the formula, good values and how it links to win rate.IntermediateMaximum DrawdownMaximum drawdown measures the largest fall from a peak to a trough in an account or strategy. Learn how to calculate it, recovery maths, duration and how to use it.IntermediateUlcer IndexThe Ulcer Index measures downside risk by combining how deep and how long drawdowns last. Learn the formula, a worked example, the Martin ratio and how to use it.IntermediateAlpha and BetaBeta measures how much a portfolio moves with the market; alpha is the return beyond what that exposure explains. Learn formulas, CAPM, regression and pitfalls.IntermediateInformation Ratio and Tracking ErrorThe information ratio divides active return by tracking error to measure how consistently a portfolio beats its benchmark. Learn the formulas, values and uses.IntermediateTreynor RatioThe Treynor ratio divides excess return by beta to measure reward for market risk. Learn the formula, a worked comparison and how it differs from the Sharpe ratio.IntermediateR-SquaredR squared shows how much of a portfolio's movement is explained by its benchmark or a model. Learn what it means, how to read it with beta and alpha, and its traps.
Building Portfolios
AdvancedPortfolio ConstructionPortfolio construction turns investment ideas or trading strategies into a set of positions with sensible sizes. Learn the steps, common methods and constraints.AdvancedAsset AllocationAsset allocation decides how much to hold in stocks, bonds, cash, commodities and other assets. Learn the main approaches, a 60/40 example and how to choose a mix.AdvancedDiversificationDiversification lowers risk by combining assets that do not move together. Learn the maths, how many holdings you need, its limits in crises and common mistakes.AdvancedCorrelation ManagementCorrelation management keeps a portfolio from turning into one big bet. Learn to measure correlations, combine correlated risks and set sensible limits.AdvancedEqual, Value and Volatility WeightingCompare equal weighting, market cap weighting and volatility weighting for portfolios. Learn how each works, worked examples and the strengths and drawbacks of each.AdvancedRisk Budgeting and Risk ParityRisk parity balances how much risk each asset contributes instead of how much money it holds. Learn risk budgeting, a worked example, leverage and drawbacks.AdvancedModern Portfolio Theory and the Efficient FrontierModern portfolio theory shows how combining assets can improve return for a given risk. Learn the efficient frontier, minimum variance portfolio and its limits.AdvancedBlack-Litterman ModelThe Black Litterman model starts from market implied returns and blends in an investor's views with stated confidence, producing stable and intuitive portfolios.AdvancedFactor ModelsFactor models explain asset returns with common drivers such as the market, size, value and momentum. Learn CAPM, Fama French and how to run a factor regression.AdvancedRebalancingRebalancing brings a portfolio back to its target weights after markets move. Learn calendar and threshold rebalancing, costs, taxes and the rebalancing premium.AdvancedPortfolio OptimizationPortfolio optimisation uses maths to choose weights that best meet a goal. Learn mean variance, minimum variance, constraints and how to handle estimation error.AdvancedRisk Contribution and Risk DecompositionRisk contribution shows how much each position adds to total portfolio risk, including correlations. Learn marginal and total contributions with a worked example.AdvancedActive vs Passive InvestingActive investing tries to beat the market; passive investing tracks it at low cost. Learn the evidence on performance, the impact of fees and how to choose.
Risk Systems
AdvancedValue at Risk (VaR)Value at risk estimates the loss a portfolio should not exceed with a given confidence over a set period. Learn the three methods, an example and the limits.AdvancedExpected Shortfall (CVaR)Expected shortfall, or CVaR, is the average loss on the worst days beyond the VaR threshold. Learn the formula, a worked example and why regulators adopted it.AdvancedStress Testing and Scenario AnalysisStress testing asks how a portfolio would fare in extreme but plausible events. Learn historical and hypothetical scenarios and reverse stress tests.AdvancedMarket, Credit and Counterparty RiskLearn the difference between market risk, credit risk and counterparty risk, how each is measured and managed, and real cases from Lehman Brothers to FTX.AdvancedLiquidity RiskLiquidity risk is the danger of being unable to trade quickly at a fair price, or running short of cash. Learn its two types, how to measure it and controls.AdvancedOperational and Model RiskOperational risk comes from failed processes, people and systems; model risk from wrong or misused models. Learn real examples and the key controls.AdvancedSystemic RiskSystemic risk is the danger that problems at one firm or market spread through the whole financial system. Learn its channels, past examples and what traders can do.AdvancedRisk, Position, Loss and Drawdown LimitsRisk limits turn a risk policy into hard rules on position size, exposure, daily loss and drawdown. Learn how to set them, enforce them and avoid mistakes.