Portfolio variance is a measure of the dispersion of returns of a portfolio. It is the aggregate of the actual returns of a given portfolio over a set period of time. Portfolio variance is calculated using the standard deviation of each security in the portfolio and the correlation between secu...
each piece representing a different asset class and type of investment. Investors aim to construct a well-diversified portfolio to achieve arisk-return portfolio allocationthat is appropriate for their level of risk tolerance.1Although stocks, bonds, and cash are generally...
Most people just regularly invest in stocks over time through dollar cost averaging. They have little concept of whether the amount of stocks they have as part of their portfolio ortheir net worthis risk appropriate. Hence, to quantify your risk tolerance based on your existing portfolio, use t...
capital riskSummary The traditional concept of 'risk' is dead and there is a need to arrive at a new definition of risk and to do this, a new understanding has to be evolved of what risk actually is. This chapter compares what financial theorists measure as risk with what one would ...
How do financial managers measure risk? A) What is the difference between a diversifiable risk and a non-diversifiable risk? B) Should stock portfolio managers try to eliminate both types of risk? Justify why using options is an effective way to reduce the overall ...
The measurement of credit risk allows lenders and investors to understand the level of risk associated with a particular borrower or investment portfolio. It helps in determining the probability of default, the potential loss in the event of default, and the exposure at default. By quantifying cred...
Investors can measure the performance of their portfolio by comparing their risk adjusted return to the return for the benchmark for their fund or investment. Having investments with lower risk in a strong market can limit returns. On the other hand, having higher risk investments when the market...
JPMorgan Chase & Co. Chief Executive Jamie Dimon said this week that asset prices, including stocks, were “kind of inflated, by any measure,” during a CNBC interview at the World Economic Forum in Davos, Switzerland. The S&P 500 SPX trades at a forward price-to-earnings ratio of 22.2...
How do investors measure the risk related to alternative investment? Explain how an asset swap can be used to hedge the interest rate risk in a bond portfolio. Describe two reasons why an investor would purchase an option instead of the underlying security. Give reasons why companies...
a client may have a high risk requirement and a low risk tolerance, which means that their financial advisor may need to set more realistic return expectations. These insights would be entirely missed if a financial advisor looked only at risk tolerance when building a client’s portfolio—the ...