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Risk & Portfolio Management

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Risk & Portfolio Management

Margin

Borrowed funds or collateral used to take a position larger than the cash available.

Margin Requirement = Position Value x Required Percentage; Leverage = Position Value / Margin Posted ₹ Risk & Portfolio Management

Margin Call

A demand from a broker for additional funds when losses reduce collateral below the required level.

Shortfall = Required Margin - Available Collateral, payable immediately ₹ Risk & Portfolio Management

Maximum Drawdown

The largest peak-to-trough decline a portfolio or strategy has experienced over a measured period.

Maximum Drawdown = the largest value of (Peak - Trough) / Peak observed across the period % Risk & Portfolio Management

Mean Reversion

The tendency of a series to return toward its long-run average after moving far away from it.

Test: extreme deviations from a long-run mean are followed on average by moves back toward that mean qualitative Risk & Portfolio Management

Modern Portfolio Theory

The framework holding that assets should be judged by their contribution to a portfolio's risk and return, not in isolation.

Portfolio Return = Sum of Weighted Returns; Portfolio Variance = Sum over all pairs of (Weight i x Weight j x Covariance of i and j) qualitative