Diversification A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out/reduces unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance
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05 and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. If you want to form a portfolio with an expected rate of return of 0.11, what percentages of your money must you invest in the T-bill and P, respectively? A. 0.25; 0.75 B. 0.19; 0.81 C. 0.65; 0.35 D. 0.50; 0.50 E. cannot be
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FINCorporate Financial Policy: Risk, Return and the CAPM Jide Wintoki Fall 2013 Jide Wintoki (University of Kansas) Business Investment (FIN 468) Fall 2013 1 / 13 Lecture Outline The Relationship Between Risk and Return The Security Market Line Calculating Individual Stock Betas Validity and the Role of the CAPM Some Alternative Theories Jide Wintoki (University of Kansas) Business Investment (FIN 468) Fall 2013 2 / 13 Risk and Return The return earned on investments
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Characteristics of risk and return in risk arbitrage Purpose of this paper is to analyze 4750 mergers from 1963 to 1998 to characterize the risk and return in risk arbitrage. After the announcement of a merger or acquisition the target company stock typically trade at discount to the price offered by the acquiring company. The difference is known as arbitrage spread, called merge arbitrage referred to an investment strategy making profit from this spread. If merger is successful the arbitrageur
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investors to analyse the risk and what expectation to keep from an investment (Banz , 1981) . There are two types of risk associated with CAPM known as systematic and unsystematic risk . The systematic risks are market risk which cannot be diversified such as fluctuations in interest rates and recession in the economy .Unsystematic risk are risks associated with an individual stock , it occurs when an investor increases the number of stocks on his portfolio. The unsystematic risk cannot be diversified
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diversified fund, I thought that investment in one balanced fund would allow me to diversify my investment and I would get a decent return. Unfortunately, the fund has given negative return in spite of the fact that the stock index during the period has gone up by 5 per cent. Being a retired person, I cannot take much risk but would like to get maximum possible return. Can you make a list of best performing funds and propose an efficient portfolio. Rahul Sharma, an MBA student in his final year
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by each group member made this project a success. OBJECTIVE To calculate and interpret the value of Beta calculated using the returns of selected companies of Chemicals and fertilizer industry of India and deriving at the conclusion as to which company to invest in considering the risk taking
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LYSSIMACHOU b1 The Risk Interpretation of the CAPM’s Beta: Evidence from a New Research Method This study tests the validity of using the CAPM beta as a risk control in cross-sectional accounting and finance research. We recognize that high risk stocks should experience either very good or very bad returns more frequently compared to low risk stocks, i.e. high risk stocks should cluster in the tails of the cross-sectional return distribution. Building on this intuition, we test the risk interpretation
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as the S&P 500.[1] An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below
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