Flashcards in Portfolio Concepts Deck (12):

1

## Mean-Variance Portfolio Theory

### Based on the idea that the value of investment opportunities can be meaningfully measured in terms of mean return and variance of return.

2

## Minimum-Variance Portfolios

### Portfolios that have minimum variance for each given level of expected return.

3

## Capital Allocation Line (CAL)

### Describes the combinations of expected return and standard deviation of return available to an investor from combining her optimal portfolio of risky assets with the risk-free rate.

4

## Capital Market Line (CML)

### When investors share identical expectations about mean returns, variance of returns, and correlations of risky assets, the CAL for all investors is the same, it is known as the CML.

5

## Security Market Line (SML)

### The graph of the CAPM is the SML.

6

## Priced Risk

### Risk for which investors require an additional return for bearing.

7

## Tracking Risk

### The standard deviation of the differences between a portfolio's and the benchmark's total return.

8

## Value at Risk

### A probability based measure of the loss that one anticipates will be exceeded only a specified small fraction of the time over a given horizon.

9

## Information Ratio

### A measure of active return per unit of active risk.

10

## Arbitrage Portfolio

### A portfolio with factor sensitivities of zero to all factors, positive expected net cash flow, and an initial investment of zero.

11

## Factor Portfolio

### A portfolio with a factor sensitivity of one to a particular factor and zero to all other factors.

12