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04 - Efficient Diversification
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Risk - Whole Economy
Markets Risk
Systematic Risk
Non-Diversable Risk
Risk - Eliminated by Diversification
Unique Risk
Firm-specific Risk
Non-systematic Risk
Diversifiable Risk
Investment Opportunity Set
Set of available portfolio risk-return combinations.
Optimal Risky Portfolio
The best combination of risky assets to be mixed with safe assets to form the complete portfolio.
Efficient Frontier
Graph representing a set of portfolios that maximises expected return at each level of portfolio risk.
Seperation Property
The property that implies portfolio choice can be separated into two independent tasks.
- determination of the optimal risk portfolio (a purely technical problem)
- the personal choice of the best mix of the risky portfolio and the risk-free asset.
Index Model
Model that relates share returns to returns on both a broad market index as well as firm-specific influences.
Beta
The sensitivity of a security's returns to the systematic or market factor.
Firm-Specific (Residual) Risk
Component of return variability that is independent of broad market movements.
Alpha
The expected return in excess of the return due to the market.
Security Characteristic Line (SCL)
Plot of a security's excess return as a function the excess return on the market.
Information Ratio
Ratio of alpha standard deviation of residual returns.
Active Portfolio
The portfolio formed by optimally combining analysed shares with perceived non-zero alpha values.
Author
Lea_
ID
316805
Card Set
04 - Efficient Diversification
Description
221 - Efficient Diversification
Updated
2016-03-04T03:28:47Z
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