Portfolio Selection and Risk Management from Coursera

When an investor is faced with a portfolio choice problem, the number of possible assets and the various combinations and proportions in which each can be held can seem overwhelming. In this course, you’ll learn the basic principles underlying optimal portfolio construction, diversification, and risk management. You’ll start by acquiring the tools to characterize an investor’s risk and return trade-off. You will next analyze how a portfolio choice problem can be structured and learn how to solve for and implement the optimal portfolio solution. Finally, you will learn about the main pricing models for equilibrium asset prices.

Learners will:

• Develop risk and return measures for portfolio of assets

• Understand the main insights from modern portfolio theory based on diversification

• Describe and identify efficient portfolios that manage risk effectively

• Solve for portfolio with the best risk-return trade-offs

• Understand how risk preference drive optimal asset allocation decisions

• Describe and use equilibrium asset pricing models.

What's inside

Syllabus

Module 1- Introduction & Risk and Return

This module introduces the second course in the Investment and Portfolio Management Specialization. In this module, we discuss one of the main principles of investing: the risk-return trade-off, the idea that in competitive security markets, higher expected returns come only at a price – the need to bear greater risk. We develop statistical measures of risk and expected return and review the historical record on risk-return patterns across various asset classes.

Module 2: Portfolio construction and diversification

In this module, we build on the tools from the previous module to develop measure of portfolio risk and return. We define and distinguish between the different sources of risk and discuss the concept of diversification: how and why putting risky assets together in a portfolio eliminates risk that yields a portfolio with less risk than its components. Finally, we review the quantitative tools that help us identify the ‘best’ portfolios with the least risk for a given level of expected return by considering a numerical example using international equity data.

Module 3: Mean-variance preferences

In this module, we describe how investors make choices. Specifically, we look at how utility functions are used to express preferences. We review measures to describe investors’ attitude towards risk. Finally, we discuss how we can summarize investors’ preferences using a specific utility function: mean-variance preferences.

Module 4: Optimal capital allocation and portfolio choice

In this module, you will learn about mean-variance optimization: how to make optimal capital allocation and portfolio choice decisions when investors have mean-variance preferences. This was one of the ground-breaking ideas in finance. We will formally set up the investor’s portfolio choice problem and learn step-by-step how to solve for the optimal allocation and risky portfolio choice given a set of risky securities. You will also have an opportunity to apply these techniques to a numerical example. This module is slightly more technical than the others. Stick with it… you will not regret it!

Module 5: Equilibrium asset pricing models

In this module, we build on the insights obtained from modern portfolio theory to understand how risk and return are related in equilibrium. We first look at the main workhorse model in finance, the Capital Asset Pricing Model and discuss the expected return-beta relationship. We then turn our attention to multi-factor models, such as the Fama-French three-factor model.

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Focuses on the Capital Asset Pricing Model and multi-factor models, which are standard models used in economics

Begins with risk-return patterns and then deepens into complex portfolio theory and pricing concepts

Examines risk and return from a theoretical perspective, which may resonate with those in research or academia

Develops the tools learners need for portfolio diversification and risk management, which are valuable for active investors

Provides extensive resources for portfolio construction and optimization, including numerical examples

Taught by Arzu Ozoguz, who has published extensively in the field of portfolio management

Reviews summary

Inconvenient, hasty course

Learners say this course is largely negative, with basic theory inaccurately presented by inconvenient assignments. Insufficient instructions and unhelpful forum discussions make it necessary for learners to rely on external sources to make up for the deficiencies.

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Portfolio Selection and Risk Management with these activities:

Review basic algebra and calculus

Show steps

Reviewing these concepts will strengthen your mathematical foundation, making it easier to understand the concepts introduced in this course.

Browse courses on Algebra

Show steps

Go over your notes or textbooks from previous algebra and calculus courses.
Take practice problems to test your understanding.
Seek help from a tutor or online resources if needed.

Read 'Modern Portfolio Theory and Investment Analysis' by Elton, Gruber, Brown, and Goetzmann

Show steps

This classic textbook introduces the fundamental concepts of portfolio theory and investment analysis, providing a solid theoretical foundation for the concepts covered in this course.

View Modern Portfolio Theory and Investment Analysis on Amazon

Show steps

Read the assigned chapters thoroughly.
Take notes and highlight important concepts.
Complete the end-of-chapter questions to test your understanding.

Meet with a study group to discuss course concepts

Show steps

Regular discussions with peers can help you clarify your understanding, identify areas where you need additional support, and gain different perspectives on the course material.

Show steps

Find a group of classmates who are interested in forming a study group.
Set up regular meeting times and locations.
Prepare for the meetings by reviewing the course material.
During the meetings, discuss the concepts, solve problems, and ask questions.

Five other activities

Expand to see all activities and additional details

Show all eight activities

Solve portfolio optimization problems

Show steps

Solving practice problems will help you develop the skills needed to apply portfolio optimization techniques to real-world investment decisions.

Browse courses on Portfolio Optimization

Show steps

Find practice problems online or in textbooks.
Solve the problems step-by-step.
Check your answers against the provided solutions.

Watch video tutorials on portfolio management

Show steps

These tutorials will supplement your understanding of the course material by providing real-world examples and practical tips.

Browse courses on Portfolio Management

Show steps

Search for tutorials on platforms like YouTube or Coursera.
Watch the tutorials and take notes.
Discuss the concepts with classmates or online forums.

Create a presentation on a portfolio case study

Show steps

Developing a presentation will allow you to synthesize your knowledge of portfolio theory and apply it to a real-world investment scenario.

Browse courses on Investment Analysis

Show steps

Choose a portfolio case study.
Analyze the portfolio's performance and identify areas for improvement.
Develop recommendations for portfolio optimization.
Create a presentation to share your findings.
Present the presentation to your classmates or instructor for feedback.

Volunteer at a financial literacy organization

Show steps

Volunteering will give you practical experience in applying portfolio management principles and help you develop your communication and interpersonal skills.

Browse courses on Financial Literacy

Show steps

Identify financial literacy organizations in your area.
Contact the organizations and inquire about volunteer opportunities.
Attend training sessions to learn about the organization's mission and programs.
Provide financial literacy education or assistance to individuals or communities.
Reflect on your experience and how it relates to the concepts covered in this course.

Identify a mentor in the field of portfolio management

Show steps

Having a mentor will provide you with guidance, support, and insights into the field of portfolio management.

Browse courses on Mentorship

Show steps

Attend industry events and network with professionals.
Reach out to individuals in your field via LinkedIn or email.
Clearly articulate your goals and what you hope to gain from the mentorship.

Career center

Learners who complete Portfolio Selection and Risk Management will develop knowledge and skills that may be useful to these careers:

Portfolio Manager

Portfolio Managers are financial professionals who oversee the investment portfolios of individuals and organizations. They make decisions about how to allocate assets, such as stocks, bonds, and cash, in order to meet the investment goals of their clients. This course can help you develop the skills and knowledge you need to become a successful Portfolio Manager. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Portfolio Manager

Financial Analyst

Financial Analysts provide investment advice to individuals and organizations. They analyze financial data and make recommendations about which investments to buy, sell, or hold. This course can help you develop the skills and knowledge you need to become a successful Financial Analyst. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Financial Analyst

Investment Banker

Investment Bankers help companies raise capital by selling stocks and bonds. They also advise companies on mergers and acquisitions. This course can help you develop the skills and knowledge you need to become a successful Investment Banker. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Investment Banker

Hedge Fund Manager

Hedge Fund Managers oversee investment funds that use advanced investment strategies to generate high returns. This course can help you develop the skills and knowledge you need to become a successful Hedge Fund Manager. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Hedge Fund Manager

Quantitative Analyst

Quantitative Analysts use mathematical and statistical models to analyze financial data and make investment decisions. This course can help you develop the skills and knowledge you need to become a successful Quantitative Analyst. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Quantitative Analyst

Risk Manager

Risk Managers identify and manage financial risks for organizations. This course can help you develop the skills and knowledge you need to become a successful Risk Manager. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Risk Manager

Actuary

Actuaries use mathematical and statistical models to assess and manage financial risks. This course can help you develop the skills and knowledge you need to become a successful Actuary. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Actuary

Financial Planner

Financial Planners help individuals and families plan for their financial future. This course can help you develop the skills and knowledge you need to become a successful Financial Planner. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Financial Planner

Certified Public Accountant (CPA)

Certified Public Accountants (CPAs) provide accounting, auditing, and tax services to individuals and organizations. This course may be useful for individuals who want to become CPAs. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Certified Public Accountant (CPA)

Data Scientist

Data Scientists use mathematical and statistical models to analyze data and solve problems. This course may be useful for individuals who want to become Data Scientists. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Data Scientist

Economist

Economists study the production, distribution, and consumption of goods and services. This course may be useful for individuals who want to become Economists. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Economist

Investment Advisor

Investment Advisors provide investment advice to individuals and organizations. This course may be useful for individuals who want to become Investment Advisors. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Investment Advisor

Financial Writer

Financial Writers write about financial topics for newspapers, magazines, and websites. This course may be useful for individuals who want to become Financial Writers. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Financial Writer

Investment Operations Analyst

Investment Operations Analysts assist portfolio managers with the day-to-day operations of investment funds. This course may be useful for individuals who want to become Investment Operations Analysts. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Investment Operations Analyst

Financial Risk Analyst

Financial Risk Analysts assess and manage financial risks for organizations. This course may be useful for individuals who want to become Financial Risk Analysts. You will learn how to analyze risk and return, construct diversified portfolios, and make optimal capital allocation decisions.

See salaries and explore the career path for Financial Risk Analyst