Stock Jobs Portfolio Management 2

Question 1

What is the 'Sharpe ratio' used for?

Accepted Answer

Evaluating risk-adjusted return by comparing excess return to standard deviation

Answer

The Sharpe ratio measures risk-adjusted performance by dividing a portfolio's excess return (above the risk-free rate) by its standard deviation, allowing comparison of portfolios with different risk levels.

Question 2

What is 'passive investing' and how does it differ from active investing?

Accepted Answer

Tracking a market index with minimal trading, in contrast to active investing which attempts to outperform the market

Answer

Passive investing aims to replicate market index returns through low-cost index funds or ETFs, while active investing involves stock selection and market timing attempts to beat the benchmark.

Question 3

What is a 'benchmark' in portfolio management?

Accepted Answer

A standard index or measure against which portfolio performance is evaluated

Answer

A benchmark is a standard, typically a market index like the S&P 500, used to measure and compare the performance of an investment portfolio.

Question 4

What is 'sector rotation' as an investment strategy?

Accepted Answer

Moving investments between market sectors based on economic cycle stages to capture outperformance

Answer

Sector rotation involves shifting portfolio weights between sectors as economic conditions change, since different sectors tend to outperform at different stages of the economic cycle.

Question 5

What is 'drawdown' in investment performance analysis?

Accepted Answer

The peak-to-trough decline in portfolio value during a specific period

Answer

Drawdown measures the decline from a portfolio's highest point to its lowest point in a given period, used to assess the worst-case loss scenario and risk of an investment strategy.

Stock Jobs Practice Test

Stock Jobs Practice Test

Stock Jobs Portfolio Management 2