What methods will be used to analyse the risk and return of an investment?
There are various methods of analysing the risk and return of an investment that can be used by investors to make informed decisions. Here are some of them:
1. Fundamental analysis:
Analysing the financial performance of companies, such as income statements, balance sheets and cash flow statements.
Assessing the main fundamental factors, such as market capitalisation, debt/equity, dividend yield, etc.
Examining macroeconomic factors such as inflation, unemployment, interest rates, etc. that can affect the global market.
2. Technical analysis:
Studying price charts and trading volumes to identify trends and support/resistance levels.
Using technical indicators such as moving averages, RSI (Relative Strength Index), MACD (Moving Average of Convergence/Divergence), etc. to identify buy or sell signals.
Using chart analysers to identify geometric shapes on charts, such as triangles, flags, beacons, etc.
3. Analysing macroeconomic trends:
Examine macroeconomic indicators such as GDP, inflation, unemployment, interest rates, etc., to determine the overall direction of the economy and its impact on the various investment classes.
Assess geopolitical risks and their potential impact on the world economy and financial markets.
4. Benchmarking:
Comparing investment opportunities based on their characteristics, such as profitability, risk, liquidity, stability, etc.
Comparing companies within the same industry or sector based on their financial performance and market prospects.
5. Strategic analysis:
Evaluation of strategic factors such as the company's competitive advantage, innovation potential, management quality, etc.
Analysing growth factors and opportunities for expanding the company's activity or the sector in general.
6. Stress tests and simulations:
Testing a portfolio against various risk scenarios and market changes to assess its sustainability and possible losses.
Use of mathematical models and computer simulations to predict the return and risk of the investment.
Each of these methods has its advantages and limitations, and investors often combine several methods to get the most complete picture of the risk and return of their investments.