Stock Trading Stock Trading Portfolio Strategy & Asset Allocation

Question 1

What is 'diversification' in portfolio management?

Accepted Answer

Spreading investments across different assets to reduce risk

Answer

Diversification reduces portfolio risk by allocating investments across various asset classes, sectors, and geographies so poor performance in one area is offset by others.

Question 2

What does 'asset allocation' refer to in portfolio strategy?

Accepted Answer

The distribution of investments among different asset classes like stocks, bonds, and cash

Answer

Asset allocation is the strategy of dividing a portfolio among major asset categories—equities, fixed income, and cash equivalents—based on goals, risk tolerance, and time horizon.

Question 3

What is 'beta' in the context of stock portfolio management?

Accepted Answer

A measure of a stock's volatility relative to the overall market

Answer

Beta measures how much a stock's price tends to move relative to the market; a beta of 1.2 means the stock moves 20% more than the market on average.

Question 4

What is 'rebalancing' a portfolio?

Accepted Answer

Restoring a portfolio to its target asset allocation after market movements shift the weights

Answer

Rebalancing involves buying or selling assets to restore a portfolio to its intended allocation after price changes have caused it to drift from the target.

Question 5

What does 'alpha' represent in portfolio performance?

Accepted Answer

The excess return generated above a benchmark, adjusted for risk

Answer

Alpha measures the value a portfolio manager adds (or subtracts) above the return of a benchmark index, after adjusting for risk taken.

Stock Trading Practice Test

Stock Trading Practice Test

Stock Trading Stock Trading Portfolio Strategy & Asset Allocation