Risk & Portfolio Management

Annualised return divided by the maximum drawdown over the same period.

Calmar Ratio = Compound Annual Growth Rate / Maximum Drawdown ratio (x, times)

The line showing the risk-return combinations available by mixing the risk-free asset with the optimal risky portfolio.

Expected Return = Risk-Free Rate + [(Market Return - Risk-Free Rate) / Market Standard Deviation] x Portfolio Standard Deviation %

Risk & Portfolio Management

The exposure created when a large share of a portfolio sits in one holding, sector or risk factor.

Test: the largest position, sector or factor exposure is large enough that a normal adverse outcome in it would materially damage the portfolio %

Risk & Portfolio Management

The average loss on the occasions when the value-at-risk threshold is exceeded.

CVaR = Average of all losses greater than the VaR threshold ₹

Risk & Portfolio Management

A measure from -1 to +1 of how closely two assets' returns move together.

Correlation = Covariance of A and B / (Standard Deviation of A x Standard Deviation of B) ratio (x, times)

Risk & Portfolio Management

The risk that the other party to a contract fails to perform its obligations.

Test: performance of the contract depends on a specific party's solvency, with no guarantor standing behind it qualitative

Risk & Portfolio Management

A measure of how two assets' returns vary together, unscaled by their individual volatilities.

Covariance = Average of [(Return A - Mean A) x (Return B - Mean B)] %

Risk & Portfolio Management

The risk that exchange rate movements change the value of an investment or cash flow measured in the home currency.

Return in Home Currency = (1 + Foreign Return) x (1 + Currency Change) - 1 %