Risk & Portfolio Management

Short-term deviations from a strategic allocation, intended to exploit expected differences in asset class returns.

Test: actual weights differ from strategic targets by a bounded amount, with a stated basis and a horizon for reverting %

The risk of rare, extreme outcomes that sit far in the tails of the return distribution.

Test: outcomes beyond three standard deviations occur far more often than a normal distribution would imply qualitative

Risk & Portfolio Management

The period before an investor needs to draw on the money invested.

Test: the date at which the capital, or a stated portion of it, must be available for spending years

Risk & Portfolio Management

The standard deviation of the difference between a portfolio's returns and its benchmark's.

Tracking Error = Standard Deviation of (Portfolio Return - Benchmark Return) over the period %

Risk & Portfolio Management

Return above the risk-free rate per unit of systematic risk, measured by beta.

Treynor Ratio = (Portfolio Return - Risk-Free Rate) / Portfolio Beta ratio (x, times)