Investment Performance Ratios Quiz

A measure of risk-adjusted return, considering both systematic and unsystematic risk. A higher Sharpe ratio indicates better returns per unit of total risk.

A measure of risk-adjusted return that focuses only on systematic risk (beta). A higher Treynor ratio indicates better performance relative to systematic risk.

Measures the excess return of a portfolio compared to its expected return based on beta and market return. Positive Alpha indicates outperformance, negative Alpha indicates underperformance.

Measures the risk-adjusted return relative to a benchmark, considering the consistency of performance. A higher Information Ratio indicates consistently exceeding the benchmark with less volatility.

The total risk of an investment, encompassing both systematic and unsystematic risk.

The risk that affects the entire market, such as economic conditions or interest rate changes.

The risk specific to a particular investment, such as company-specific issues or industry trends.

A measure of how much the return of a portfolio is expected to change in relation to changes in the overall market.

The concept that investors should aim to maximize returns while minimizing unnecessary risk. It suggests that diversifying investments across different asset classes can lower overall risk without sacrificing expected returns.

The tendency for investors to place a higher value on assets they already own compared to similar assets they don't own, often due to emotional attachment.

The phenomenon where investors tend to follow the crowd, making decisions based on what others are doing rather than independent analysis.

The preference for information that confirms existing beliefs and the tendency to ignore or downplay conflicting evidence, leading to biased decision-making.

A tendency for investors to overestimate their knowledge, abilities, or the accuracy of their predictions, leading to excessive trading and risk-taking.

A correlation between two assets means they tend to move together. For example, a high positive correlation means they tend to rise and fall together, while a low or negative correlation means they move in opposite directions. In MPT, diversifying by combining assets with low correlations can help reduce portfolio volatility.

A visual representation of the relationship between risk and return in portfolio management. It shows how diversification can achieve higher returns for a given level of risk.

The process of adjusting the asset allocation in a portfolio over time to maintain the desired level of risk and return. It involves adding or selling assets based on market conditions and investment goals.