How to Compare Stock Market Portfolios

by Bradley James Bryant ; Updated July 27, 2017

If you own or are interested in owning a portfolio of stocks, the first thing you need to do is develop a system to evaluate portfolios. Because all investors want a return on their investment, most definitions of success and performance levels in the world of investments center around a portfolio's return profile. In other words, how much money you can make and how much risk are you willing to take on for it. As such, comparing stock portfolios means comparing a risk adjusted measure for return.

Step 1

Compare betas. Beta is a common measurement for risk. Mathematically, it is the relationship between stock market portfolio returns and general market rates of return. The higher the beta, the higher the risk on a stock market portfolio.

Step 2

Look up a stock portfolio's beta. Go to Yahoo! Finance. Yahoo! Finance is the top-rated financial research site online, according to Alexa.com.

Step 3

Input the ticker symbol or the name of the company in the box located in the top left corner of the site. Click "Get Quotes."

Step 4

Go to Key Statistics in the left panel under Company.

Step 5

Scroll to Stock Price Information to find the stock's beta. A beta of 1 is defined as "medium risk" compared to the rest of the market. A beta below 1 is defined as "low risk," or less volatile than the market. A beta of over 2 is viewed as "higher risk," or more volatile than the market.

Step 6

Multiply the weighted average of these stocks by the beta to get the return for the portfolio. To get a weighted average, add the value of all your shares.

Step 7

Divide the value of each company by the value of the total portfolio. This is the company's weight in the portfolio.

Step 8

Multiply each weight by its corresponding beta.

Step 9

Add all the weighted betas in the portfolio to get the total portfolio beta.

References

About the Author

Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG.com and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.

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