Definitions Flashcards
Dual momentum
The dual momentum strategy works by targeting the assets with the most momentum in a particular market situation. The idea is to select assets that have historically outperformed other assets and are also themselves in positive momentum — these would be the assets to buy, especially in a bull market.
Outperformance option
An outperformance option is an exotic with a payoff value that is based on the relative performance of one asset compared with another. Outperformance options allow speculators to bet on the performance of two assets relative to each other.
Low beta
A beta value that is less than 1.0 means that the security is theoretically less volatile than the market. Including this stock in a portfolio makes it less risky than the same portfolio without the stock. For example, utility stocks often have low betas because they tend to move more slowly than market averages.
Soft landing
A soft landing, in economics, is a cyclical slowdown in economic growth that avoids recession. A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an economy from overheating and experiencing high inflation, without causing a severe downturn.
Hard landing
A marked economic slowdown or downturn following a period of rapid growth
Convertible bond
A convertible bond offers investors a type of hybrid security, which has features of a bond such as interest payments while also providing the opportunity of owning the stock. This bond’s conversion ratio determines how many shares of stock you can get from converting one bond.
Tracking error
Tracking error is the standard deviation of the difference between the returns of an investment and its benchmark.
iTraxx
iTraxx is a collection of indexes for the credit default swap market in Europe, Australia, and Asia. These indexes allow market makers and active participants in the swaps market to take the other side of trades for a short period and provide liquidity in these markets.
