Technical Risk Rations Flashcards

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1
Q

What are the 5 technical risk ratios?

A

Alpha, Beta, Standard Deviation, Sharpe ratio, R-Squared

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2
Q

Alpha

A

alpha represents the performance of a portfolio relative to a benchmark or market index

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3
Q

Beta

A

Beta determines the volatility of an asset or portfolio in relation to the overall market. The overall market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market.

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4
Q

R-Squared

A

measures the broad market’s overall volatility or risk, known as systematic market risk.

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5
Q

Modern Portfolio Theory

A

A practical method for selecting investments in order to maximize their overall returns within an acceptable level of risk.

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6
Q

Sharpe Ratio

A

compares the return of an investment with its risk (risk adjusted performance compared to the return of a risk free asset)

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7
Q

Efficient Market Hypothesis

A

market prices incorporate all available information at all times, and so securities are always properly priced (the market is efficient.)

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8
Q

Why is Alpha used

A

alpha in diversified portfolios, with diversification intended to eliminate unsystematic risk. It can be added or subtracted from a funds return

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9
Q

Standard Deviation

A

Measures the dispersion of a dataset relative to its mean. It’s often used as a measure of a relative riskiness of an asset.

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10
Q

Standard deviation of a volatile stock is

A

High- the data observed is quite spread out.

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11
Q

Standard deviation of a stable, blue chip stock is

A

Low

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12
Q

The mean

A

Adding all the data points and dividing them by the number of data points.

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13
Q

Calculate range

A

the highest value minus the lowest value

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14
Q

The market has a beta of

A

1

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15
Q

What is a good Sharpe Ratio?

A

Sharpe ratios above 1 are generally considered “good,” offering excess returns relative to volatility.

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16
Q

Beta measures…

A

Volatility

17
Q

Alpha measures…

A

an Asset Manager’s Performance

18
Q

What does a high R-Squared number mean?

A

The higher it is, the more correlated the performance of the asset is to the performance of the benchmark.

19
Q

What does high R-Squared and high Beta mean

A

A higher R-squared indicates a strong correlation to a benchmark. Coupled with a high beta, the asset will most likely perform better than the benchmark.