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Risk & Portfolio Management

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Risk & Portfolio Management

Sharpe Ratio

Return above the risk-free rate per unit of total volatility.

Sharpe Ratio = (Portfolio Return - Risk-Free Rate) / Standard Deviation of Portfolio Returns ratio (x, times) Risk & Portfolio Management

Sortino Ratio

Return above a minimum acceptable return per unit of downside deviation only.

Sortino Ratio = (Portfolio Return - Target Return) / Downside Deviation ratio (x, times) Risk & Portfolio Management

Standard Deviation

A measure of how far a set of returns typically sits from their average.

Standard Deviation = square root of the average of the squared deviations from the mean % Risk & Portfolio Management

Strategic Asset Allocation

A long-term target mix of asset classes based on objectives and risk capacity, held through market conditions.

Test: target weights are set for the long term and changed only when circumstances change, not when markets move % Risk & Portfolio Management

Stress Testing

Estimating how a portfolio would perform under specified severe but plausible adverse scenarios.

Test: apply a defined set of shocks to prices, rates, spreads and correlations, and compute the resulting portfolio value % Risk & Portfolio Management

Systematic Risk

Risk affecting the entire market that cannot be removed by diversification.

Test: the risk arises from factors common to all assets, such as interest rates, inflation, policy or global shocks qualitative