CPS Risk Management in Portfolios

Question 1

What is 'systematic risk' in portfolio management?

Accepted Answer

Market-wide risk that cannot be diversified away

Answer

Systematic risk (market risk) affects all investments and cannot be eliminated through diversification.

Question 2

What does 'beta' measure in portfolio risk analysis?

Accepted Answer

A portfolio's sensitivity to market movements

Answer

Beta measures how much a portfolio or security moves relative to the overall market, with a beta of 1.0 indicating it moves in line with the market.

Question 3

What is 'unsystematic risk' also called?

Accepted Answer

Idiosyncratic or company-specific risk

Answer

Unsystematic risk (idiosyncratic risk) is specific to a company or sector and can be reduced through diversification.

Question 4

Which tool is commonly used to hedge against portfolio downside risk?

Accepted Answer

Put options on the portfolio or index

Answer

Put options give the holder the right to sell at a set price, protecting against portfolio losses if markets decline.

Question 5

What does 'Value at Risk' (VaR) estimate?

Accepted Answer

The maximum expected loss over a specific period at a given confidence level

Answer

VaR estimates the maximum loss a portfolio could experience over a given time period at a specific confidence level (e.g., 95% or 99%).

CPS - Certified Portfolio Specialist Practice Test