CIM Asset Allocation & Risk Management 2

Question 1

An investor holds two assets with correlation of -1.0. What is theoretically possible?

Accepted Answer

A portfolio with zero standard deviation

Answer

With perfect negative correlation, weights can be chosen so portfolio risk is eliminated entirely.

Question 2

Which allocation approach periodically rebalances back to fixed policy weights regardless of market conditions?

Accepted Answer

Constant-mix strategy

Answer

A constant-mix strategy buys losers and sells winners to restore target weights.

Question 3

CPPI (constant proportion portfolio insurance) performs best in which market environment?

Accepted Answer

Strongly trending markets

Answer

CPPI buys as prices rise and sells as they fall, so it benefits from sustained trends.

Question 4

A 1-day 95% VaR of $2 million means:

Accepted Answer

There is a 5% chance of losing at least $2 million in one day

Answer

VaR gives a minimum loss threshold expected to be exceeded with the stated tail probability.

Question 5

Which risk measure satisfies subadditivity and captures the average loss beyond the VaR threshold?

Accepted Answer

Conditional VaR (Expected Shortfall)

Answer

Expected Shortfall averages tail losses beyond VaR and is a coherent risk measure.

CIM - Chartered Investment Manager Practice Test