Portfolio Calculations

Deciding which systems and markets should be traded at the same time, in an effort to reduce risk through diversification, is an entire field of expertise called portfolio management. While markets have always changed, reflecting economic policy and the growth of participation, more recent years of globalization have made portfolio management much more difficult. As more institutions trade international markets as they do their own, they cause a higher correlation of price movements throughout the world. This increase in correlation between previously unrelated areas makes it more difficult to reduce risk through diversification, and makes previous asset allocations obsolete. One answer to this problem is simply to rebalance the portfolios more often, regrouping assets by their similar price movements.