Which technique is used to analyze an individual’s portfolio for risk and returns?

Portfolio analysis is a comprehensive technique that enables an advisor to assess an individual's investment portfolio by examining both the potential risks and expected returns of the investments within it. This process involves evaluating the performance of various assets, understanding how they interact with one another, and determining whether the overall portfolio aligns with the individual's financial goals, risk tolerance, and investment horizon.

Through portfolio analysis, investors can identify strengths and weaknesses in their investment strategy, making it possible to make informed decisions about necessary adjustments. This technique encompasses various metrics and methodologies to scrutinize how well the portfolio is performing compared to benchmarks or indices, as well as to gauge market conditions that may affect future performance.

In contrast to techniques like asset allocation—which focuses more on how investments are distributed across various asset classes—portfolio analysis delves deeper into the specifics of each investment's contribution to the overall risk and return profile. Therefore, this technique plays a critical role in effective investment management and strategy optimization.