A market portfolio is a collection of investments that, together, represent the entire market. It therefore includes all major asset classes, such as stocks, bonds, and cash. The market portfolio is often used as a benchmark against which other portfolios are measured. This is because it provides a good representation of the overall market, and … Read more
Geographical diversification is the process of investing in a range of different geographical areas in order to spread risk. This type of diversification can be achieved by investing in a variety of asset classes, such as stocks, bonds, and real estate, in different countries. Geographical diversification is a key part of portfolio management and is … Read more
The term “alpha risk” is used to describe the risk that is associated with making investments in a portfolio. Alpha risk is the risk that the portfolio will not perform as well as the market. This risk is often measured by the standard deviation of the portfolio’s returns. What does alpha risk mean? Alpha risk … Read more
An equity style box is a tool used by financial analysts to categorize stocks according to their investment style. The equity style box has nine squares, each representing a different investment style. The styles are: growth, value, blend, small cap, mid cap, large cap, international, emerging markets, and sector. The equity style box is a … Read more
Underweight is a term used in portfolio management to describe a situation where the weight of a particular asset class in a portfolio is less than its target weight. For example, if the target weight of stocks in a portfolio is 50%, but the actual weight of stocks is 40%, then the portfolio is said … Read more
Price risk, also called market risk, is the possibility that an investment will lose value because of changes in the market. Market risk is the risk that an investment’s value will change because of changes in the market. It is the risk that an investment will go down in value because of changes in the … Read more
A core holding is a security that an investor believes will retain or increase in value over time and forms the foundation of their investment portfolio. The decision to make a security a core holding is based on a number of factors, including the security’s historical performance, its expected future performance, and the investor’s overall … Read more
Incremental value at risk (IVaR) is a risk management technique used to quantify the potential loss from adding a security or portfolio to an existing one. IVaR is also known as marginal value at risk (MVaR). IVaR is calculated by first estimating the value at risk (VaR) of the existing portfolio, then adding the VaR … Read more
Covariance: Formula, Definition, Types, and Examples What is another name for covariance? There is no other name for covariance. What is covariance structure? Covariance is a statistical measure of how two variables change together. In investments, covariance is used to determine how two assets move in relation to each other. A positive covariance means that … Read more
Return over maximum drawdown (RoMaD) is a metric used to assess the risk-adjusted performance of a portfolio. It is calculated as the ratio of the portfolio’s annualized return to its maximum drawdown. A high RoMaD indicates that the portfolio has performed well relative to its downside risk. For example, a portfolio with an annualized return … Read more
