Risk & Portfolio Management
8 terms
Calmar Ratio
Risk & Portfolio Management
ratio (x, times)
Annualised return divided by the maximum drawdown over the same period.
Calmar Ratio = Compound Annual Growth Rate / Maximum Drawdown
Capital Market Line
Risk & Portfolio Management
%
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
Concentration Risk
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
Conditional Value at Risk
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
Correlation
Risk & Portfolio Management
ratio (x, times)
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)
Counterparty Risk
Risk & Portfolio Management
qualitative
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
Covariance
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)]
Currency Risk
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