Quantitative Methods & Statistics for Fund Management Flashcards
7 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Quantitative Methods & Statistics for Fund Management flashcards as text
What does standard deviation measure in portfolio analysis?
Answer: The dispersion of returns around the mean
Standard deviation measures how much returns deviate from the mean, representing the total risk of an investment.
A fund manager calculates a Sharpe ratio of 1.5. What does this indicate?
Answer: The fund earned 1.5 units of excess return per unit of total risk
The Sharpe ratio measures excess return above the risk-free rate per unit of standard deviation, so 1.5 means 1.5 units of excess return per unit of total risk.
What is the valid range of the correlation coefficient between two assets?
Answer: -1 to +1
The correlation coefficient always ranges from -1 (perfect negative correlation) to +1 (perfect positive correlation), with 0 indicating no linear relationship.
Which statistical measure is most useful for comparing risk-adjusted performance across funds with different absolute risk levels?
Answer: Coefficient of variation
The coefficient of variation (standard deviation divided by mean) normalizes risk relative to return, allowing comparison across funds with different absolute risk and return levels.
In regression analysis, what does R-squared (R²) measure?
Answer: The proportion of variance in the dependent variable explained by the independent variable(s)
R-squared, the coefficient of determination, represents the proportion of variance in the dependent variable that is predictable from the independent variable(s), ranging from 0 to 1.
What is the primary purpose of Monte Carlo simulation in fund management?
Answer: To model potential outcomes by running many random simulations based on input distributions
Monte Carlo simulation uses random sampling to model the probability distribution of outcomes, helping fund managers assess risk and uncertainty across complex, multi-variable scenarios.
What does a p-value below 0.05 indicate in hypothesis testing for a fund performance study?
Answer: The result is statistically significant at the 5% significance level
A p-value below 0.05 means there is less than a 5% probability of observing the results if the null hypothesis were true, indicating statistical significance at the 5% level.