What does standard deviation measure in a portfolio?
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Standard deviation quantifies the dispersion of returns from the average, providing a measure of total risk or volatility.
Which of the following is an example of systematic risk?
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Systematic risk affects the entire market, such as interest rate changes, economic recessions, or geopolitical events.
Which metric evaluates a portfolio’s return per unit of total risk?
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The Sharpe ratio measures the excess return per unit of total risk, using standard deviation in its calculation.
What does alpha measure in performance evaluation?
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Alpha represents the excess return of a portfolio compared to its benchmark, indicating manager skill.
Which type of risk can be reduced through diversification?
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Unsystematic risk is specific to individual companies or industries and can be minimized by holding a diversified portfolio.
What does the Treynor Ratio use to measure risk?
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The Treynor Ratio evaluates excess return per unit of systematic risk, using beta in its calculation.