HollyPedia

Here, you will find all the concepts and terms of HollyTools.

Build your portfolio

What is a financial ASSET?
A financial ASSET is a financial instrument that grants title to an asset listed on financial markets.
What is a PORTFOLIO of financial assets?

A PORTFOLIO is a set of financial assets that is built from individual assets to obtain the results of its entirety.
1- ¿Why is important to build a portfolio? A portfolio is built to achieve the best combination of assets in order to obtain the best risk-return profile at the global level of the portfolio.
2- What is the first step in building a portfolio? The first step is to define the global risk that we want and are willing to assume during the investment period, taking into account that a portfolio is built to achieve long-term results.
3- How do I add assets to a portfolio? There are two different approaches:
– Based on the risk we want to assume and with the criteria of maximum diversification, we will look for the combination of assets that fits our level of risk. The profitability in the long term is a consequence of the risk that we are going to take.
– Based on the assets in which we have expectations, we will add assets to our portfolio, analyzing whether the overall risk of the portfolio matches the risk we want and can take.

What is a SHARE?

A SHARE is a security issued by a company that represents the ownership that the investor has in that company.
These titles are bought and sold in the financial markets, and the supply and demand of these titles at all times is what sets the price of a company’s share in the financial markets.

What is a market INDEX?

A MARKET INDEX is a basket of listed assets of a specific financial market that is used to represent it and that serves as an indicator of the global performance of that market.

¿What is an ETF?

An ETF (Exchange-Traded Fund) is an investment fund that is traded on financial markets.
Like a traditional Mutual fund, it is an investment vehicle that invests in a basket of assets.
What differentiates an ETF from a traditional Mutual Fund is that ETFs are bought and sold in the financial markets just like a company share does. When you want to repay the money invested, the order can be executed at the market price at that time.

What is an INDEX ETF?

An Index ETF is exchange-traded fund that seek to replicate and track a benchmark index of some stock exchange.
When investing in an ETF of an index it is as if we were investing in a basket of assets that contained all the assets of the index that represents a certain stock exchange.

What is the STOXX 600?

The STOXX 600 is a stock market index made up of the top 600 companies by market capitalization in Europe.
The STOXX 600 represents approximately 90% of the listed companies in Europe from the following 17 countries: Germany, Austria, Belgium, Denmark, Spain, Finland, France, Greece, Netherlands, Ireland, Italy, Norway, Portugal, United Kingdom, Republic Czech, Sweden and Switzerland.

What is the DAX 40?

The DAX 40 is the stock market index representing the top 40 companies listed on the Frankfurt Stock Exchange and is the benchmark indicator for the German stock market.

What is CAC 40?

The CAC 40 is the benchmark stock market index for the French stock market and represents the top 40 French companies by market capitalization.

What is the S&P 500?

The S&P 500 (Standard & Poor’s 500) is one of the most important stock indices in the United States and is considered to be the most representative index of the state of the stock market in this country.
The S&P 500 comprises the 500 largest market capitalization companies listed on the NYSE or NASDAQ and represents approximately 80% of all market capitalization in the United States.

What is NASDAQ 100?

The NASDAQ 100 is a United States stock index that comprises the values ​​of the 100 largest companies listed on the second largest United States stock market, the NASDAQ.
It is characterized by being an index that collects the behavior of the technology industry sector including hardware and software companies, telecommunications, retail/wholesale and biotechnology and, unlike the S&P 500, this index does not include securities of the financial sector.

What is FTSE 100?

The FTSE 100 is the stock market index that represents the London Stock Exchange, made up of the 100 companies with the largest market capitalization in the United Kingdom and accounts for 70% of the total value of the London Stock Exchange.

What is NIKKEI 225?

The NIKKEI 225 is the stock index made up of the 225 stocks of the largest and most liquid companies listed on the Tokyo Stock Exchange and is the most representative stock indicator of the Japanese stock market.

What is CSI 300?

The CSI 300 (China Securities Index) is the main stock index of mainland China.
It is made up of the 300 largest companies listed on the Shanghai and Shenzhen Stock Exchanges, the two largest in China along with the Hong Kong Stock Exchange and, unlike the HANG SENG INDEX (HSI), represents companies that carry out an important part of its commercial activity in the Chinese domestic market.

What is HANG SENG INDEX?

The HANG SENG (HSI) is the representative index of the Hong Kong Stock Exchange, made up of the 50 largest companies listed on this Stock Exchange.
Hong Kong from an administrative point of view is part of China and companies listed on the Hong Kong Stock Exchange do most of their economic activity in the rest of China and the world.

What is BOVESPA?

BOVESPA is the stock index made up of the 50 most liquid companies listed on the Sao Paulo Stock Exchange and is the reference stock index of the Brazilian stock market.

What is KOSPI?

The KOSPI is the stock market index made up of all companies listed on the South Korean Stock Exchange and the benchmark stock market index of the South Korean stock market.

What is NIFTY 50?

The NIFTY 50 is the stock index representing the 50 largest companies listed on the National Stock Exchange of India and is the most representative stock index of the Indian stock market.

What is RTS?

The RTS is the stock market index made up of the shares of the 50 largest Russian companies listed on the Moscow Stock Exchange.
Together with the MICEX, they are the reference stock indices for the Russian stock market, the difference between the two indices being that the MICEX is calculated in rubles and the RTS in dollars.

What is S&P/TSX Composite?

The S&P/TSX (Standard & Poor’s/Toronto Stock Exchange) Composite is the most representative stock index of the Canadian Stock Exchange.
It represents approximately 70% of the total market capitalization on the Toronto Stock Exchange (TSX) with approximately 250 companies listed on it. The number of companies that are part of the index is not fixed but fluctuates over time and is usually between 200 and 250 companies.

What is a BOND?

A BOND is a debt title issued by a government or company to finance itself.
The issuer of a bond (a government or a company) agrees to repay the borrowed money to the buyer on its maturity date.
The issuer of the bond also agrees to pay interest previously set periodically or cumulatively at the time of maturity. Each of those interest payments is called a coupon of the bond.
Once the bonds are initially issued and purchased by investors, they are later bought and sold in the financial markets like the shares of a company. The supply and demand in the financial markets of these titles is what sets the price of the bond at all times.

What is a COMMODITY?

A COMMODITY is a tangible and homogeneous basic product among the companies that produce it.
They are normally used as raw materials in the manufacture of other more elaborate products.
These basic products are traded in the financial markets like any other financial asset and, like the latter, are subject to price variations due to the interaction of supply and demand.

What is a CRIPTOCURRENCY?

A CRYPTOCURRENCY is a digital asset that uses cryptographic encryption to guarantee its ownership, authenticity and ensure the integrity of transactions.
This digital asset acquires value by the interaction of supply and demand, and its use as a currency is subject to market acceptance.
Cryptocurrencies are not regulated or controlled by a central bank and are decentralized, so they do not require intermediaries in transactions, instead, shared databases or accounting records are used to control transactions.

What is DEMAND DEPOSIT account?

A DEMAND DEPOSIT account (DDA) is a bank account from which all deposited funds can be withdrawn without any advance notice. The client has full disposal of the amount deposited both in terms of amount and the time of its disposal.

Your investment summary

What is DIVERSIFICATION?
DIVERSIFICATION is the investment strategy that consists of investing in a variety of assets and financial products. Diversification reduces the overall risk of a portfolio. This is due to the different behavior of financial assets and products in the face of the different risks that may affect them. With equal return expectations, a portfolio that is well diversified across a wide variety of financial assets and products has a lower overall risk level than a portfolio focused solely on certain financial products or assets. Or what is the same, with equal global risk of a portfolio, a well-diversified portfolio has an expected return that is higher than a concentrated portfolio. Diversifying is investing in different types of assets, sectors, industries and geographic areas. The more varied the assets that make up your portfolio, the better will be the positive effect of reducing overall risk that diversification produces.
What is VOLATILITY?
Volatility is the most widely used statistic to report the market risk of a financial asset. Market risk is the fluctuations of an asset in the financial markets. Historical volatility informs us of both the positive and negative dispersion of historical returns around the average return in one year, contemplating 68% of possible cases. This means that, if we are interested in using volatility as a measure of market risk, there are 32% of the cases that are not included in the volatility statistic (16% for positive cases and 16% for negative ones). Historical volatility is a sufficiently stable statistic to be used for risk-based investment decision making.
What is a STRESS TEST?

A STRESS TEST is an analysis that contemplates the most unfavorable market scenarios.
Although Volatility is the statistic most widely used to report the market risk of a financial asset, it considers only 68% of the possible cases. This means that, if we are interested in using volatility as a risk measure, there are 32% of the cases that are not included in the volatility statistic (16% for positive cases and 16% for negative ones).
With the STRESS TEST we expand the possible cases in the analysis, increasing the level of confidence for the probabilistic calculation. The objective is to know with this new level of confidence the possible dispersion of returns that can be achieved in a year around the RBER Expected Return.
It is important to know that:
1- Although historical data is used to calculate market risk, the risk metrics are statistically stable enough to be able to have a good approximation of the expected risk.
2- The calculation of the STRESS TEST is carried out under the hypothesis that returns in financial markets behave following a normal distribution and, therefore, also assuming symmetry in the distribution of returns around an average expected return.

What are REQUIRED RETURN (RBRR) and EXPECTED RETURN (RBER)?

The inherent uncertainty of financial markets makes it impossible to predict future performance. However, some financial models provide valuable tools for obtaining an approximation of long-term returns based on the estimated risk we are willing to take.

These models are grounded in the understanding that there exists a long-term equilibrium relationship between return and risk in financial markets, with risk being a more stable statistical variable compared to returns.

While this relationship may not hold in the short term, particularly at the individual asset level, it proves highly beneficial when making long-term investments in a diversified portfolio of financial assets. It enables us to approximate the expected returns over the long term and determine the necessary returns to adequately compensate for the estimated market risk involved.

RBRR – Risk-Based Required Return is the minimum return over the long term that adequately compensates for the market risk.

RBER – Risk-Based Expected Return is the expected return over the long term, considering both the market risk and the behavior of assets in the financial markets.

Expected Return aligns with that of Required Return (RBRR); however, it incorporates the relative behavior of different assets in the market, resulting in a metric that better reflects the reality of the assets in financial markets.

These financial models assist us in avoiding unrealistic long-term expectations and understanding the risk-return relationship in financial markets.

What is Component Risk?

Component Risk refer to an analysis of market risk that enables the breakdown and measurement of the individual contribution of market risk from each asset to the overall market risk of a portfolio of financial assets.

This analysis allows us to measure each of the market risks that affect a portfolio of financial assets, separating currency risk from the actual market risk, and quantifying both risks separately.

What if summary

What is a scenario SIMULATION?

A SIMULATION is an analysis methodology that helps us understand how certain events can affect us.
In the case of HOLLYTOOLS, it is you who determines the scenarios that you want to analyze and from this obtain different simulations.
The objective is to be able to understand how a market event can affect the value of our portfolio of financial assets, and, therefore, it is an intuitive way of understanding the risks.

Optimize your portfolio

What is an OPTIMIZATION of portfolios of financial assets?

An OPTIMIZATION is a mathematical model that seeks the best solution based on some requirements.
In the case of HOLLYTOOLS, the objective is to maximize the expected return of a portfolio based on the level of risk that we have defined.
Our algorithms analyze all the possible combinations and determine which assets and with what amount are the ones that maximize this expected return for the level of risk that you have determined.

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