The Factors tool in the PORT portfolio and risk analytics solution in Bloomberg can help us understand the current drivers of risk and return in our existing portfolio. We can also get a sense of how our risk factor exposures would be impacted by a hypothetical new allocation. While an optimized allocation is the best way to go, in cases where optimization fails this can provide an additional data point in guiding your allocation decision.
The specific example we will consider is estimating the factor exposures of a current portfolio of the FAANG* stocks, and how these might be impacted by adding a new position in Tesla (TSLA) stock.
This video assumes the viewer is familiar with risk factor models, as well as the basics of entering a portfolio into the Bloomberg software.
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* The FAANG portfolio is a group of high-performing tech stocks consisting of Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOGL). This portfolio is for illustration purposes only and is not intended as investment advice.