We developed our diversification model for the purpose of calculating and illustrating the diversification level of the investment portfolio of an individual investor.
The diversification score is currently based on eight factors: location, loan type, property type, loan period, property value, loan amount, interest and schedule type. Each of these factors has several components (different types, intervals etc.) which in some cases also have a negative correlation to each other i.e. when one component goes down the other goes up (returns change). A general example of this is a portfolio disbursement based on business type (say, oil company and transport company) – when oil prices go up, shares of the oil company go up but go down for the transport company and vice versa when oil prices go down.
Based on these entries, the disbursement of the portfolio is calculated for each factor (by the number and amount of investments). Also, the proposed disbursement has been added by EstateGuru (based on EstateGuru’s internal models and algorithms) and the diversification score of each factor is calculated by measuring the deviations from proposed disbursement percentages. The scores of each factor are summarized and an average of those scores is calculated, which represents the total of the portfolio, while the chart illustrates the disbursement visually.
The main purpose of diversification is to create an investment portfolio, which is most resistant to market fluctuations. Simply put, the investments (loans) should be disbursed in such a manner that if one part of the portfolio is going down (returns fall due to market changes), the other parts go up or maintain their returns. A highly diversified portfolio should be represented by low risk, low return fluctuations while maintaining the expected return of the portfolio. EstateGuru’s new diversification score will help investors to accomplish the above-mentioned goals.
To see the feature, go to estateguru.co, log in to your account and check the category “Account balance overview”.