What Is Portfolio construction?

Portfolio construction a trading strategy method of selecting securities to your portfolio optimally to achieve maximum returns while taking minimum risk.

Portfolio constructions involves understanding how different asset classes, funds, and weightings impact each other and an investor’s objectives

Portfolio construction has several phases

  • Asset allocation models - to determine the optimal mix of asset classes (stocks, bonds, and commodities) in a portfolio, based on historical returns, volatility, and correlations.

  • Optimization techniques - to identify the best combination of individual securities within each asset class, based on factors such as expected return, risk, and liquidity.

  • Risk management tools - such as stop-loss orders, hedging strategies, and diversification techniques, to manage portfolio risk and reduce exposure to individual assets or market risks

  • Alpha generation strategies - such as factor investing, statistical arbitrage, and trend-following, to identify assets that are likely to outperform or underperform the broader market.

See also

TradingStrategy.ai operated by Trading Strategy Operations Ltd., Victoria, Mahe, Seychelles.