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Finance Chapter 15: Portfolio Management

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Finance Chapter 15: Portfolio Management

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Questions and Answers

What does beta measure in relation to a security or portfolio?

The expected return of a portfolio

The overall market risk

The volatility of a security or portfolio relative to the overall market (correct)

The correlation between two securities

What is the best form of diversification in a portfolio?

Investing in securities with no correlation

Investing in securities with the same correlation

Investing in securities with negative correlation (correct)

Investing in securities with positive correlation

What does a correlation of +1 indicate between two securities?

Perfect negative correlation

Perfect positive correlation (correct)

No correlation

Partial positive correlation

What is asset allocation in portfolio management?

The distribution of capital among various asset classes Signup and view all the answers

What does an ideal portfolio consist of in terms of correlation?

Securities with as much negative correlation as possible Signup and view all the answers

What is the primary factor affecting asset allocation in portfolio management?

Investment objectives Signup and view all the answers

How does diversification in a portfolio affect overall risk?

Decreases overall risk Signup and view all the answers

What is the expected return of a portfolio calculated as?

The weighted average of the expected returns of each asset Signup and view all the answers

What does a correlation of -1 indicate between two securities?

Perfect negative correlation Signup and view all the answers

What does variance measure in relation to a security's returns?

The average deviation of returns from the mean Signup and view all the answers