Portfolio Management and Diversification 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 Management and Diversification flashcards as text
What is the efficient market hypothesis (EMH)?
Answer: A theory that stock prices fully reflect all available information, making it impossible to consistently beat the market
The Efficient Market Hypothesis argues that asset prices always incorporate all publicly available information, making it very difficult for investors to consistently outperform the market through stock selection or market timing.
What does 'beta' measure in portfolio analysis?
Answer: A stock's volatility relative to the overall market
Beta measures how much a security's price moves relative to the market; a beta greater than 1 indicates higher volatility than the market, while less than 1 indicates lower volatility.
What is an aggressive growth portfolio typically characterized by?
Answer: Heavy concentration in equities, particularly small-cap and growth stocks, accepting higher volatility for potential high returns
An aggressive growth portfolio emphasizes equities, especially growth and small-cap stocks, accepting significant short-term volatility in pursuit of maximum long-term capital appreciation.
What is a conservative portfolio designed to do?
Answer: Preserve capital and generate steady income with lower risk through bonds and dividend stocks
A conservative portfolio prioritizes capital preservation and income generation, typically holding a higher proportion of bonds, dividend stocks, and cash equivalents with limited equity exposure.
What does 'correlation' mean in the context of portfolio management?
Answer: A statistical measure of how two investments move in relation to each other
Correlation measures whether two assets tend to move in the same direction (+1), opposite directions (-1), or independently (0), with low or negative correlation being ideal for diversification.
What is the primary goal of a target-date fund?
Answer: To automatically shift from aggressive to conservative investments as an investor approaches a target retirement date
Target-date funds automatically adjust their asset allocation — shifting from growth-oriented equities to more conservative bonds and cash — as the investor's target retirement year approaches.