Week 3 - Capital markets And The Pricing Of Risk Flashcards Preview

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Flashcards in Week 3 - Capital markets And The Pricing Of Risk Deck (5)
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1

As the number of securities in a portfolio goes up, the portfolio risk goes...

Down

2

What are the Two types of risk and what do they mean?

Unsystematic Risk
- The unique risk of each security in a portfolio.
- Unsystematic risk can be diversified away.

Systematic Risk
- The risk to the market as a whole.
- Systematic risk is unavoidable.

3

How is the portfolio weighting calculated?

Wi = Value of Investment/ Total Value of Portfolio

4

What is the covariance of two stocks?

The degree to which two stocks face the same risks.

5

What does a Large covariance signify?

That the good and bad outcomes for the stock occur at the same time.