04 - Efficient Diversification

• Markets Risk
• Systematic Risk
• Non-Diversable Risk

• Unique Risk
• Firm-specific Risk
• Non-systematic Risk
• Diversifiable Risk

Set of available portfolio risk-return combinations.

The best combination of risky assets to be mixed with safe assets to form the complete portfolio.

Graph representing a set of portfolios that maximises expected return at each level of portfolio risk.

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.

Model that relates share returns to returns on both a broad market index as well as firm-specific influences.

The sensitivity of a security's returns to the systematic or market factor.

Component of return variability that is independent of broad market movements.

The expected return in excess of the return due to the market.

Plot of a security's excess return as a function the excess return on the market.

Ratio of alpha standard deviation of residual returns.

The portfolio formed by optimally combining analysed shares with perceived non-zero alpha values.