Risk & Portfolio Management
5 terms
Efficient Frontier
Risk & Portfolio Management
qualitative
The set of portfolios offering the highest expected return for each level of risk.
Test: no other portfolio offers a higher expected return at the same standard deviation, or the same return at a lower one
Emergency Fund
Risk & Portfolio Management
₹
Money held in safe, immediately accessible instruments to cover unexpected expenses or loss of income.
Target Emergency Fund = Monthly Essential Expenses x Number of Months of Cover Required
Equity Risk Premium
Risk & Portfolio Management
%
The additional return investors require for holding equities rather than the risk-free asset.
Equity Risk Premium = Expected Market Return - Risk-Free Rate
Event Risk
Risk & Portfolio Management
qualitative
The risk that a specific identifiable occurrence causes a sudden large move in a security's price.
Test: a scheduled or plausible discrete event exists whose outcome would materially change the security's value
Expectancy
Risk & Portfolio Management
₹
The average result per trade of a strategy, combining win rate with the sizes of wins and losses.
Expectancy = (Win Rate x Average Win) - (Loss Rate x Average Loss)