IMC Study Guide 2026

Correlation measures the degree to which two asset classes move together. Assets with low or negative correlation provide the greatest diversification benefits when combined. A correlation of +1 means assets move perfectly together; -1 means they move in opposite directions; 0 means no linear relationship.

Portfolio turnover measures how frequently a fund's holdings are replaced. High turnover generates greater transaction costs (bid-offer spreads, commissions) and potential tax inefficiencies, which reduce net returns. Low-turnover, buy-and-hold strategies typically incur lower costs.

Infrastructure as an asset class involves investing in physical systems and facilities such as transport networks, utilities, energy, and social infrastructure. It typically offers stable, long-term, inflation-linked returns and low correlation with equities.

The Remuneration Code requires investment firms to ensure their remuneration policies do not encourage excessive risk-taking, are consistent with sound risk management, include appropriate deferrals and malus/clawback provisions for variable pay, and align the interests of staff with the long-term interests of the firm and its clients.

Scenario analysis assesses portfolio performance under specific hypothetical scenarios (e.g., a 2008-style financial crisis, a sharp rise in rates, a Brexit-type event). It helps identify vulnerabilities not captured by standard statistical risk measures.

TWR eliminates the effect of the timing and size of external cash flows (client deposits and withdrawals), which are outside the manager's control. This makes it suitable for comparing managers fairly, as required by the GIPS performance standards.