Cherries Glossary
All definitions specific to Cherries Software are marked with a
Adjusted Rates
The published share price is the result of transactions on the stock exchange – buying, selling, etc. But sometimes that price doesn’t accurately reflect returns, since it doesn’t take into account dividends received, stock splits, or mergers. These can cause gaps of hundreds of percentage points in the rate of return calculations. Therefore, we use adjusted rates that take all of the influences into account before calculating returns.
Backtesting
Cherries’ backtesting function allows you to check how your portfolio would have done starting at any point in the past. This allows you to track the portfolio’s results and compare them to leading benchmarks.
Benchmark
A standard by which to compare. In the context of investment, this usually refers to major market indices like the Nasdaq100 or the Dow Jones Industrial Average. You can compare your portfolio's performance to theirs to see how your portfolio holds up.
Cash
Cherries uses as much of the users’ investment as possible in order to “purchase” the shares required for an optimal portfolio. However, there will always be a small amount left over. This is labeled “cash” and is not enough to buy any more shares while maintaining the parameters of the optimal portfolio.
Diversification
This refers to the variety of sectors represented in your portfolio. The more sectors and the less correlation and covariance, the better the portfolio’s diversity. Diversification is measured on a scale of 1% to 99%.
Efficient Frontier
A curve that connects the peak of all optimal portfolios. Read more here.
ETF – Exchange Traded Fund
A financial instrument composed of diverse assets, such as stocks, bonds, etc., in order to lower the risk involved. Also known as an ETN, or Exchange Traded Notes, every ETF focuses on a specific sector or financial condition.
Minimum Variance Portfolio (MVP)
This refers to the solid risk level portfolio with the highest rate of return.
MPT – Modern Portfolio Theory
The theory proposed by Nobel laureate Professor Harry Markowitz that attempts to maximize portfolio yields for given risk levels or minimize risk levels while reaching a given yield using precise proportions of diverse assets.
Participation Units
A financial property that acts like a stock and is traded on the stock exchange but doesn’t have the legal status of a stock. Participation units usually represent ventures that require high volumes of investment but aren’t interested in diluting holdings through a public offering.
Portfolio
In most cases, this refers to a collection of diverse financial assets (stocks, real estate, debt instruments, etc.) that are managed by an organization or individual licensed to manage investment portfolios. On the Cherries platform, a “portfolio” refers only to a stock portfolio.
Profit
The difference between the costs and the proceeds or the current value of the portfolio. The proceeds include dividends and/or interest received. Within the given period, the timing of the interest or dividend payout doesn’t matter.
Quantity
The number of shares or participation units in a given portfolio at the time of the purchase or sale order.
Return
Total profits divided among all shareholders. The rate of return is usually calculated in percentages by dividing the current share price by the base price of the stock at the beginning of the period being measured. It’s important to use the adjusted rate for this calculation and not the official rate.
Risk Level
The chance that a portion of your investment will be lost within a given time period. For example, there is a significant chance that a high-risk portfolio will lose money in the coming months but the potential profit is high, sometimes even ten times higher than the potential loss.
Risk-Reward Ratio (Return to Risk Ratio)
Every stock is measured according to the ratio of its average yield over three years compared to the average risk in that period. The higher the yield and lower the risk, the better the stock did.
Sector
A sector is a branch of the economy represented on the stock exchange. For example, the energy sector includes the stocks of companies that generate oil or electricity and the biomedical sector includes the stocks of pharmaceutical companies, etc. You can choose specific sectors to include in your portfolio using Cherries’ Custom Create tool.
Security
A financial asset that is primarily traded on a securities exchange. There are a number of common types of securities: stocks, participation units, various certificates, bonds, derivatives, and more.
Stock
A stock is a certificate that demonstrates financial involvement in a public company. It proves that the holder of the stock is a partial owner of the company and entitled to a certain amount of the company’s profits and a certain amount of the company’s assets if the company closes. Officially, the stockholders are the business owners and are responsible for a percentage of the company’s debts, based on the amount of stock they each hold. Stocks are bought and sold in stock exchanges and their prices are published daily.
Stock Exchange
An exchange is where people meet (these days, mostly virtually) to buy and sell. In most exchanges people are buying and selling stocks, but there are also commodity exchanges (for things like wheat, corn, cocoa, coffee, rice, precious and industrial metals, oil, and more), currency exchanges, and security exchanges, among others.
Symbol
Every stock and security is assigned a unique symbol on the stock exchange where it’s traded. This is its official name and appears on all documentation. For example, the symbol for Apple stock is AAPL.
Tangency Portfolio (TP)
This is the most stable portfolio that can be created with a given set of stock prices.