Investment Strategy Test Flashcards

The efficient frontier represents portfolios that offer:

Answer: The maximum expected return for a given level of risk

The efficient frontier shows optimal portfolios maximizing return per unit of risk.

A contrarian investment strategy involves:

Answer: Buying assets that are out of favor with the market

Contrarians go against prevailing sentiment, buying unpopular or oversold assets.

Which best describes a 'core-satellite' portfolio approach?

Answer: A passive index core surrounded by smaller active positions

Core-satellite pairs a low-cost passive base with targeted active holdings.

Correlation between two assets matters in portfolio construction because:

Answer: Lower correlation improves diversification benefits

Combining assets that move differently lowers overall portfolio volatility.

A momentum strategy is based on the idea that:

Answer: Recent winners tend to keep outperforming in the near term

Momentum investing assumes trends persist, favoring recent outperformers.

Duration in a bond portfolio measures sensitivity to:

Answer: Changes in interest rates

Duration estimates how much a bond's price changes when interest rates move.

Strategic asset allocation differs from tactical allocation in that it:

Answer: Sets long-term target weights held over time

Strategic allocation establishes long-term targets, while tactical makes shorter-term deviations.