Chapter 6

Question 1

What is primary data?

Answer 1

Primary data is information or material specifically collected for a particular purpose and the conditions under which it was collected and any limitations will be known

Question 2

What is secondary data?

Answer 2

Secondary data is collected by government agencies and other international bodies which is then distributed in a convenient form and typically requires further analysis if each user is to maximise the value of the information contained in it

Question 3

What does a bar chart display?

Answer 3

A bar chart is used to display information as bars or columns representing each class of data according to their frequency of occurrence; they are useful for comparing items and relationships or frequency distribution

Question 4

What does a pie chart display?

Answer 4

A pie chart is a circle divided into different slices, each representing a different set of data, they are useful for describing the component parts of the data being presented

Question 5

What is the mean?

Answer 5

The mean is the average of the sum of all observations and is calculated by: sum of all observations / number of observations

Question 6

What is the Median?

Answer 6

The median is the value of the middle item in a set of data arranged in chronological order

Question 7

What is the Mode?

Answer 7

The mode is the most frequently occurring number in a set of data

Question 8

What is the measure of ‘Central Tendency’?

Answer 8

Measures of central tendency establish a single number or value that is typical of the distribution - i.e: the value for which there is a tendency for the other values in the distribution to surround.

Question 9

What is the measure of ‘Dispersion’?

Answer 9

Measures of dispersion, however, quantify the extent to which these other values within the distribution are spread around, or deviate from, this single number

Question 10

What is ‘Variance’?

Answer 10

Variance measures the spread of data to determine the dispersion around the arithmetic mean

Question 11

Why is ‘Variance’ useful?

Answer 11

Variance is useful in that it provides a measure of dispersion and is used to calculate the beta of a stock, but it results in a value in different units than the original

Question 12

What is ‘Standard Deviation’?

Answer 12

The ‘Standard Deviation’ of a data set is simply the square root of the ‘Variance’ and is the most commonly used measure of dispersion

Question 13

What are the 3 categories of ‘Big Data’?

Answer 13

Structured, Unstructured & Multi-Structured

Question 14

What is ‘Technical Analysis’?

Answer 14

‘Technical Analysis’ seeks to evaluate the value of a company, but instead of analysing a company’s intrinsic value and prospects, it uses historical price and volume data to assess where the price of a security will move in the future

Question 15

What are the 3 assumptions made in ‘Technical Analysis’?

Answer 15

The market discounts everything, prices move in trends & history tends to repeat itself

Question 16

What is ‘Total Return’?

Answer 16

‘Total Return’ is used when there are no external cash flows and is the actual return delivered by a portfolio over its holding period

Question 17

What is ‘Money-Weight Rate of Return’?

Answer 17

MWRR is used to measure the performance of a portfolio of fund that has had deposits and withdrawals during the period measured

Question 18

What is ‘Money-Weighted Rate of Return’ also referred to as?

Answer 18

It is also referred to as the Internal Rate of Return (IRR)

Question 19

What is ‘Time-Weighted Rate of Return’?

Answer 19

TWRR removes the impact of the impact of cash flows on the rate of return calculation. The TWRR is established by breaking the investment period into sub-periods

Question 20

Multi-Factor Models - What theories use a single factor model?

Answer 20

CAPM

Question 21

Multi-Factor Models - What theories use multi-factor models?

Answer 21

Fama-French & APT

Question 22

Multi-Factor Models - What are the 3 main multi-factor models?

Answer 22

Macroeconomic, Fundamental & Statistical factor models

Question 23

What are the 3 main calculations methods used in the construction of a market index?

Answer 23

Price Weighted (e.g - DJIA) , Market Capitalisation Weighted (S&P 500 & FTSE 100) & Equal Weighted (e.g - Nikkei 225)

Question 24

What is the ‘Inter-Quartile Range’?

Answer 24

The inter-quartile range is the difference between the 25th percentile ranked find and the 75th percentile ranked fund, to calculate the inter-quartile range you need to subtract the value of the lower quartile ( or 25%) from the value of the upper quartile ( or 75%).

Question 25

What is 'Alternative Data'?

Answer 25

Alternative data refers to data that is not part of traditional stock analysis methods (e.g - online review, satellite images etc)

Question 26

What does a 'Histogram' display?

Answer 26

Histograms look similar to bar graphs, but it is the area and not the height of the bar that represents the frequency of occurrence; they are often used to illustrate the major features of the distribution of data in a convenient form

Question 27

What does a 'Time Series' graph display?

Answer 27

Time Series graph displays data over time, such as a share price

Question 28

What does a 'Scattergram' display?

Answer 28

Scattergrams are used to determine whether there is a relationship between two variables and are often used to illustrate a correlation or pattern between different assets

Question 29

What does a 'Semi-log' graph display?

Answer 29

Semi-log graphs are used to show a variable’s rate of change and illustrate an accelerating rate of growth over time

Question 30

What are 'Indicators'?

Answer 30

Indicators are calculations used to establish a price movement and form buy and sell signals

Question 31

What are 'Oscillators'?

Answer 31

Oscillators are another type of calculation that indicates whether a security is over-bought or over-sold. It is, therefore, unconcerned whether a security is undervalued and simply concerns itself with future price movements.

Question 32

What is an 'Uptrend'?

Answer 32

For an uptrend, each successive low must be higher than the previous low point, otherwise it is referred to as a reversal

Question 33

What do 'Relative Strength Charts' depict?

Answer 33

Relative strength charts depict the price performance of a security, relative to the broader market. If the relative performance of the security improves against the broader market, this may confirm that a suspected breakout on the upside has or is about to occur

Question 34

What is the 'Sterling Ratio'?

Answer 34

The Sterling ratio is a risk-adjusted measure of an investment portfolio. It measures how efficiently risk capital is being allocated. It is often used by hedge funds, as well as individuals

Question 35

What is the 'Calmar Ratio'?

Answer 35

The Calmar ratio measures the performance of an investment fund, (ie, hedge funds against its risk). It shows the comparison of return and risk and it is calculated by taking the average annual rate of return divided by maximum drawdown for the previous three years

Question 36

What is the 'Omega Ratio'?

Answer 36

The Omega ratio is a weighted risk-return ratio for a given level of expected return and measures the performance of an investment asset, portfolio, or strategy. It was developed to overcome flaws of performance measures, such as the Sharpe ratio. Unlike the Sharpe Ratio, Omega captures all distributions and considers excess returns.