How to check if your Portfolio is balanced

In this article, we will explain how to check if your portfolio is balanced. We assume that a portfolio is balanced when the stock prices are within 10% of the average price. If any stock’s price deviates by more than 10% from this average, the portfolio is considered unbalanced.

Example Data

Here is an example of stock data:

const prices = [
    { price: '100' },  // Stock A
    { price: '105' },  // Stock B
    { price: '90' },   // Stock C
    { price: '110' }   // Stock D
];

Step-by-Step Execution

1. Calculate the Total Price of All Stocks

The total price is the sum of all stock prices:

• Stock A: $100
• Stock B: $105
• Stock C: $90
• Stock D: $110

The total sum is:

total = 100 + 105 + 90 + 110 = 405

2. Calculate the Average Price

Next, we calculate the average price of all the stocks:

target = total / number of stocks = 405 / 4 = 101.25

The average price is $101.25.

3. Check if Each Stock is Within 10% of the Average

Now, we check if each stock’s price deviates more than 10% from the average price ($101.25):

• Stock A:
  • Difference from average: Math.abs(100 - 101.25) = 1.25
  • Percentage difference: (1.25 / 101.25) ≈ 0.0123 or 1.23%
  • Since 1.23% is less than 10%, Stock A is within the threshold.
• Stock B:
  • Difference from average: Math.abs(105 - 101.25) = 3.75
  • Percentage difference: (3.75 / 101.25) ≈ 0.037 or 3.70%
  • Since 3.70% is less than 10%, Stock B is within the threshold.
• Stock C:
  • Difference from average: Math.abs(90 - 101.25) = 11.25
  • Percentage difference: (11.25 / 101.25) ≈ 0.111 or 11.11%
  • Since 11.11% is greater than 10%, Stock C is outside the threshold.
• Stock D:
  • Difference from average: Math.abs(110 - 101.25) = 8.75
  • Percentage difference: (8.75 / 101.25) ≈ 0.0864 or 8.64%
  • Since 8.64% is less than 10%, Stock D is within the threshold.

4. Determine if the Portfolio is Balanced

Stock C deviates more than 10% from the average price, the portfolio is unbalanced.

Final Outcome

Since Stock C’s price is more than 10% away from the average price of $101.25,

Visualization

Below is a table summarizing the stock prices and their deviation from the average:

Stock	Price	Difference from Average	Percentage Difference	Within 10%?
Stock A	$100	$1.25	1.23%	Yes
Stock B	$105	$3.75	3.70%	Yes
Stock C	$90	$11.25	11.11%	No
Stock D	$110	$8.75	8.64%	Yes

Conclusion

In this example, the portfolio is considered unbalanced because Stock C’s price deviates more than 10% from the average. This would indicate that the portfolio requires rebalancing to bring the stock prices closer to the average.