Stock Trading Stock Trading Portfolio Strategy & Asset Allocation 2

Question 1

What is 'dollar-cost averaging' (DCA) as an investment strategy?

Accepted Answer

Investing a fixed dollar amount at regular intervals regardless of price

Answer

Dollar-cost averaging involves investing a fixed amount at regular intervals, buying more shares when prices are low and fewer when prices are high, reducing average cost over time.

Question 2

What does 'Sharpe ratio' measure in portfolio analysis?

Accepted Answer

Risk-adjusted return, calculated as excess return divided by standard deviation

Answer

The Sharpe ratio measures how much excess return is earned per unit of risk (standard deviation), with higher ratios indicating better risk-adjusted performance.

Question 3

What is 'sector rotation' as a portfolio strategy?

Accepted Answer

Moving capital between economic sectors based on business cycle stages

Answer

Sector rotation involves shifting portfolio allocations among sectors—like moving from defensive sectors during downturns to cyclical sectors during recoveries—based on economic cycle expectations.

Question 4

What is 'correlation' and why is it important in portfolio construction?

Accepted Answer

It measures how two assets move relative to each other, helping reduce overall portfolio risk

Answer

Correlation measures the degree to which two assets move together; combining assets with low or negative correlation reduces portfolio volatility through diversification.

Question 5

What is a 'core-satellite' portfolio strategy?

Accepted Answer

Combining a stable core of index funds with smaller satellite positions in active or specialized investments

Answer

The core-satellite approach uses low-cost, diversified index funds as the portfolio core (70-80%) while adding smaller satellite positions in higher-conviction or specialized strategies.

Stock Trading Practice Test

Stock Trading Practice Test

Stock Trading Stock Trading Portfolio Strategy & Asset Allocation 2