PORTFOLIO AND RISK METRICS

Question 1

Sharpe Ratio

Answer 1

(Return – Risk-free rate) / Std dev of returns—a measure of risk-adjusted performance.

Question 2

Sortino Ratio

Answer 2

(Return – Target return) / Downside deviation—focuses only on harmful volatility.

Question 3

Beta (β)

Answer 3

Measure of an asset’s price sensitivity relative to the market (β > 1 = more volatile).

Question 4

Alpha (α)

Answer 4

Excess return relative to a benchmark—indicator of manager skill.

Question 5

VaR

Answer 5

Value at Risk: maximum expected loss over a given period at a certain confidence level.

Question 6

Drawdown

Answer 6

Peak-to-trough decline in portfolio value—measures severity of losses.

Question 7

Correlation

Answer 7

Statistical measure (–1 to +1) of how two assets move together.