granular

English translation: comprising many assets or asset classes (types of asset)

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GLOSSARY ENTRY (DERIVED FROM QUESTION BELOW)
English term or phrase:granular
English translation:comprising many assets or asset classes (types of asset)
Entered by: Charles Davis
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07:56 May 29, 2018
English to English translations [PRO]
Bus/Financial - Finance (general) / rating
English term or phrase: granular
For granular asset classes with homogeneous portfolios, such as RMBS and consumer ABS, Fitch applies deterministic multiples. For asset classes with less granular portfolios (but not single-asset or very concentrated large-loan pools) or portfolios that show sector concentration and where asset correlation is assumed to be less than 100%, Fitch applies a stochastic approach based on a Monte Carlo simulation correlation model to determine the appropriate multiples for higher rating scenarios.

The text above is from the Global Structured Finance Rating Criteria by Fitch Ratings. What confuses me is the words "granular" and "homogeneous" in the first sentence. According to the definition of "granular portfolio" at https://www.investopedia.com/terms/g/granular_portfolio.asp, granular means well diversified. But isn't "well diversified" the opposite of "homogeneous"? How is possible that there is such a thing called "granular asset classes with homogeneous portfolios"? What's that like?
Karen Zeng
China
Local time: 12:04
comprising many assets or asset classes (types of asset)
Explanation:
First, "granular" and "homogeneous" can't be synonymous. If they are, it obviously doesn't make sense (which is your problem).

Second, "granular" and "homogeneous" are both properties of portfolios, not assets or asset classes, except in so far as they refer to the assets or asset classes in a given portfolio. So tempting though it may be to say that the difference is that granularity is a property of asset classes and homogeneity a property of portfolios, this is undermined by the reference to "less granular portfolios", not to mention the innumerable online references to both the granularity and the homogeneity of portfolios (as distinct phenomena).

But if granular means diverse, and homogeneous (common sense would suggest) means non-diverse, how can a portfolio be both granular and homogeneous?

The answer, I believe, is that they refer to different properties of a portfolio: different kinds of diversity or otherwise.

1. A granular portfolio is one that contains many assets of different kinds. That is what your own source means by "diversified": "this type of portfolio contains a large number of positions in different asset classes and/or sectors".

"asset granularity: number and diversification of the assets"
https://www.eurandom.tue.nl/reports/2009/050-report.pdf

The idea of granularity is simply not putting all your eggs in one basket. It refers to how many different things you're investing in. A low-granularity portfolio invests in few assets and asset classes.

2. Homogeneity: Murat has kindly cited a definition: "A homogeneous portfolio has holdings that have similar performance and risk characteristics."
https://www.paladinregistry.com/financial-dictionary/homogen...

Now, similar performance and risk are a different matter from the number and diversity of assets and asset types. You can have many assets in your granular portfolio, but those assets can have similar or dissimilar levels of risk: this is what is meant by homogeneous or heterogeneous. A granular portfolio can be either.

Homogeneity means that the positions in each asset or asset class are of the same or similar exposure. You can get a sense of the criteria of homogeneity from the following. They are various measures of risk:

"In the one factor model, by dividing a whole portfolio of credits in fine grained homogeneous clusters where all assets of a same cluster have the same PD [probability of default], the same LGD [loss given default rate], the same EAD [exposure at default], the same correlation [...]"
https://uu.diva-portal.org/smash/get/diva2:667747/FULLTEXT01...

"in the heterogeneous portfolio the individual risks are independent but not identically distributed. In the homogeneous portfolio the risks are independent and identically distributed"
https://www.researchgate.net/publication/4958804_A_compariso...

"Assume that all loans are of the same amount (homogeneous portfolio), have the same probability of default, and have a common asset correlation ρ and the same expiry date"
https://beta.vu.nl/nl/Images/werkstuk-ederov_tcm235-91346.pd...

"Homogeneous Portfolio Assumption I
Consider a portfolio consisting of n loans characterized by:
- equal dollar amount
- equal probability of default p
- flat correlation coefficient  between the asset values of any two companies
- the same term T"
http://didattica.unibocconi.it/mypage/dwload.php?nomefile=Le...

So granularity is a measure of the number and type of assets and homogeneity is a measure of the type and weight of exposure and risk in the various assets.

--------------------------------------------------
Note added at 17 hrs (2018-05-30 00:59:21 GMT)
--------------------------------------------------

To put it another way, granularity is about the nature of the assets in the portfolio and homogeneity is about the nature of the holdings in those assets.
Selected response from:

Charles Davis
Spain
Local time: 06:04
Grading comment
4 KudoZ points were awarded for this answer



Summary of answers provided
3 +2asset class vs portfolio
Mark Nathan
4comprising many assets or asset classes (types of asset)
Charles Davis
5 -2granular and homogeneous have same meaning
Murat Söker


Discussion entries: 10





  

Answers


14 mins   confidence: Answerer confidence 5/5 peer agreement (net): -2
granular and homogeneous have same meaning


Explanation:
Hello Karen,
Granular and homogenous have the same meaning in this context and these two words support each other within the sentence.
On the other hand, nonhomogenous or heterogeneous is the anthonym of homogenous.
I hope this helps to clarify your question.
Best,
Murat

Example sentence(s):
  • A granular portfolio is an investment portfolio that is well diversified across a wide variety of assets, typically with a significant number of holdings. Read more: Granular Portfolio Definition | Investopedia https://www.investopedia.com/terms/g/granu

    https://www.investopedia.com/terms/g/granular_portfolio.asp
Murat Söker
Turkey
Local time: 07:04
Meets criteria
Specializes in field
Native speaker of: Native in TurkishTurkish
Notes to answerer
Asker: I believe granular means well diversified while homogeneous (meaning uniform in structure or composition) is just the opposite.


Peer comments on this answer (and responses from the answerer)
disagree  philgoddard: They have opposite meanings.
3 hrs

disagree  Yvonne Gallagher: with Phil
7 hrs
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7 hrs   confidence: Answerer confidence 3/5Answerer confidence 3/5 peer agreement (net): +2
asset class vs portfolio


Explanation:
The text says that the asset class is granular, but the portfolio is homogeneous.
It does not say that the portfolio is granular.

So the RMBS asset class could include a wide range of securities - different size loans, different periods etc. However, within this asset class one coud have a portfolio of similar securities, eg. loans of all the same size, and this would be a homogeneous portfolio within a granular asset class.

Mark Nathan
France
Local time: 06:04
Meets criteria
Works in field
Native speaker of: Native in EnglishEnglish
PRO pts in category: 28

Peer comments on this answer (and responses from the answerer)
agree  Yvonne Gallagher
42 mins

agree  philgoddard
43 mins

neutral  Charles Davis: However, it goes on to refer to "less granular portfolios", so I don't think it can be just a question of granular asset class vs homogeneous portfolio.
5 hrs
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13 hrs   confidence: Answerer confidence 4/5Answerer confidence 4/5
comprising many assets or asset classes (types of asset)


Explanation:
First, "granular" and "homogeneous" can't be synonymous. If they are, it obviously doesn't make sense (which is your problem).

Second, "granular" and "homogeneous" are both properties of portfolios, not assets or asset classes, except in so far as they refer to the assets or asset classes in a given portfolio. So tempting though it may be to say that the difference is that granularity is a property of asset classes and homogeneity a property of portfolios, this is undermined by the reference to "less granular portfolios", not to mention the innumerable online references to both the granularity and the homogeneity of portfolios (as distinct phenomena).

But if granular means diverse, and homogeneous (common sense would suggest) means non-diverse, how can a portfolio be both granular and homogeneous?

The answer, I believe, is that they refer to different properties of a portfolio: different kinds of diversity or otherwise.

1. A granular portfolio is one that contains many assets of different kinds. That is what your own source means by "diversified": "this type of portfolio contains a large number of positions in different asset classes and/or sectors".

"asset granularity: number and diversification of the assets"
https://www.eurandom.tue.nl/reports/2009/050-report.pdf

The idea of granularity is simply not putting all your eggs in one basket. It refers to how many different things you're investing in. A low-granularity portfolio invests in few assets and asset classes.

2. Homogeneity: Murat has kindly cited a definition: "A homogeneous portfolio has holdings that have similar performance and risk characteristics."
https://www.paladinregistry.com/financial-dictionary/homogen...

Now, similar performance and risk are a different matter from the number and diversity of assets and asset types. You can have many assets in your granular portfolio, but those assets can have similar or dissimilar levels of risk: this is what is meant by homogeneous or heterogeneous. A granular portfolio can be either.

Homogeneity means that the positions in each asset or asset class are of the same or similar exposure. You can get a sense of the criteria of homogeneity from the following. They are various measures of risk:

"In the one factor model, by dividing a whole portfolio of credits in fine grained homogeneous clusters where all assets of a same cluster have the same PD [probability of default], the same LGD [loss given default rate], the same EAD [exposure at default], the same correlation [...]"
https://uu.diva-portal.org/smash/get/diva2:667747/FULLTEXT01...

"in the heterogeneous portfolio the individual risks are independent but not identically distributed. In the homogeneous portfolio the risks are independent and identically distributed"
https://www.researchgate.net/publication/4958804_A_compariso...

"Assume that all loans are of the same amount (homogeneous portfolio), have the same probability of default, and have a common asset correlation ρ and the same expiry date"
https://beta.vu.nl/nl/Images/werkstuk-ederov_tcm235-91346.pd...

"Homogeneous Portfolio Assumption I
Consider a portfolio consisting of n loans characterized by:
- equal dollar amount
- equal probability of default p
- flat correlation coefficient  between the asset values of any two companies
- the same term T"
http://didattica.unibocconi.it/mypage/dwload.php?nomefile=Le...

So granularity is a measure of the number and type of assets and homogeneity is a measure of the type and weight of exposure and risk in the various assets.

--------------------------------------------------
Note added at 17 hrs (2018-05-30 00:59:21 GMT)
--------------------------------------------------

To put it another way, granularity is about the nature of the assets in the portfolio and homogeneity is about the nature of the holdings in those assets.

Charles Davis
Spain
Local time: 06:04
Meets criteria
Native speaker of: Native in EnglishEnglish
PRO pts in category: 82
Notes to answerer
Asker: Thank you.

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