Statistics and Risk Management Flashcards
What is the Coefficient of Correlation?
Shows relationship between x and y
-1 = very strong inverse relationship \+1 = very strong direct relationship 0 = no relationship
What is the Coefficient of Determination?
Percent of variation in the dependent variable explained by the variation in independent variable
What is the F-statistic?
Probability that the overall predicted relationship occurred by chance
What is the t-statistic?
Indicates independent variable statistical significance in predicting the dependent variable
What is the Gordon Growth Model?
Total Return = Distribution Rate + Growth Rate
What is standard deviation?
Measures volatility of an investment
What is Modern Portfolio Theory?
The standard deviation of a portfolio with be smaller than standard deviation of individual investment
What are correlation coefficients?
1 = one investment goes up, other one goes up and vice versa 0 = no relationship -1 = one investment goes up, other one goes down and vice versa
What is unsystematic risk?
Avoidable risk that can be diversified away
What is systematic risk?
Unavoidable risk that cannot be diversified away
What is Beta risk?
Measures volatility of an individual investment relative to the market as a whole
Measures systematic risk of investment
What is Alpha?
Measure of the degree of success or failure of individual portfolio manager
What is the Liquidity Preference Theory?
Interest rates would be higher for long term than short term since investors would demand more compensation for the risk = Normal Yield Curve
What is Expectations Theory?
Long term interest rates reflect future expected short term interest rates = Inverted Yield Curve
What is Market Segmentation Theory?
Some participants in bond markets may focus on lending at different terms
