Portfolio Analysis Test Flashcards
6 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Portfolio Analysis Test flashcards as text
Which portfolio performance metric measures return per unit of total risk (standard deviation)?
Answer: Sharpe ratio
The Sharpe ratio divides excess return (return minus risk-free rate) by the portfolio's standard deviation to measure return per unit of total risk.
Beta in portfolio analysis measures a security's sensitivity relative to what?
Answer: The market portfolio
Beta measures the degree to which a security's returns move in relation to the overall market (typically represented by an index like the S&P 500).
What does a negative alpha indicate about a portfolio manager's performance?
Answer: The portfolio underperformed its benchmark on a risk-adjusted basis
A negative alpha means the portfolio earned less return than predicted by its level of risk relative to the benchmark, indicating underperformance.
Which correlation coefficient value indicates perfect negative correlation between two assets?
Answer: -1
A correlation coefficient of -1 indicates that two assets move in exactly opposite directions, providing maximum diversification benefit.
The efficient frontier in Modern Portfolio Theory represents portfolios that offer:
Answer: Maximum return for a given level of risk
The efficient frontier plots portfolios that achieve the maximum expected return for each level of risk (standard deviation), representing the optimal risk-return tradeoff.
What is 'tracking error' in the context of portfolio management?
Answer: The standard deviation of the difference between portfolio and benchmark returns
Tracking error is the standard deviation of the difference (active return) between a portfolio's returns and its benchmark's returns over time.