MorePortfolio analysis is a quantitative technique that is used to determine the specific characteristics of an investment portfolio. The process of analyzing a portfolio involves several stages, including a statistical performance review, risk and risk-adjusted metrics, attribution, and positioning. The goal of analyzing an investment portfolio is to help investors decide whether it has achieved its objectives and identify areas that can be optimized. In this blog, we explore all these aspects along with additional links to other resources.Key Learning PointsPortfolio analysis is at the core of the decision-making process in investment management and a solid understanding of the market and asset class fundamentals.The key aim of analyzing a portfolio is to establish whether it has performed in line with expectations over a specified period, the level of risk assumed, and the attribution of returns.It is important to note that portfolios vary widely – investors should carefully consider factors such as the investment style and objectives, risk budget and portfolio composition.Although the basic concepts of portfolio analysis are well-established, methods are constantly evolving and now analysts must consider integrating ESG factors into the analysis.Steps in Portfolio AnalysisThe analysis process can differ depending on investment philosophy, composition, and objectives, but generally involves multiple layers of quantitative analysis. Below are some of the key steps.Performance AnalysisPerformance analysis assesses how well a portfolio has performed over a specific period, helping investors evaluate the success of their investments. This is done both on absolute and relative basis. Below is an example of a growth-oriented portfolio, the T. Rowe Price Global Growth Equity Fund, and its performance against the broader market (the MSCI World Index) and its target benchmark (the MSCI World Growth Index).The most common measure of relative performance for benchmarked strategies (i.e., those seeking to outperform a specific index) is alpha. This performance measure represents the excess return generated over a benchmark’s performance.To successfully analyze performance, investors should pay attention to the following key rules:Benchmarks are relevant to the portfolio.The benchmarks must be measurable.The performance periods examined should be consistent with the portfolio’s time horizon unless the deviation is for a specified reason (for example, to understand how a portfolio performed during a particular market.