Week 3 - Capital markets And The Pricing Of Risk Flashcards
1
Q
As the number of securities in a portfolio goes up, the portfolio risk goes…
A
Down
2
Q
What are the Two types of risk and what do they mean?
A
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
Q
How is the portfolio weighting calculated?
A
Wi = Value of Investment/ Total Value of Portfolio
4
Q
What is the covariance of two stocks?
A
The degree to which two stocks face the same risks.
5
Q
What does a Large covariance signify?
A
That the good and bad outcomes for the stock occur at the same time.
