Module 2 of 5 in Investing and portfolio management
Building a portfolio
Diversification, concentration risk, asset allocation across equity and fixed income, correlation in practice, beta, and position sizing.
5 lessons in this module. Progress is saved in your browser as you go.
This module covers how a portfolio is put together: spreading money across holdings and asset classes, measuring how they move together, and deciding how much to put in each. It is careful to show what diversification does not do.
By the end of this module you should be able to
- Explain how diversification reduces company-specific risk and why it cannot remove market risk.
- Describe asset allocation across equity, fixed income and cash and how it drives portfolio risk.
- Interpret correlation and beta for a portfolio and explain their limits.
- Decide position sizes and limits that keep concentration risk under control.
Lessons in order
Module test
10 questions, chosen at random from a bank of 31 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- The risks of investing in shares: That lesson introduces concentration risk and the main risks of owning shares.
- Correlation and causation: How much diversification helps depends on correlation, explained there.
- Risk, return, liquidity and time horizon: Fixed income and equity sit at different points on the risk-return trade-off explained there.
- Nominal and real returns: Fixed income returns must be judged after inflation, as that lesson explains.
- Risk tolerance and risk capacity: The right allocation depends on tolerance and capacity.
- Averages, spread and volatility: Beta is built from the volatility and co-movement of returns.