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Definition of Efficient diversification
The organizing principle of modern portfolio theory, which maintains that any riskaverse
Principles underlying the analysis and evaluation of rational portfolio choices
A measurement of the extent to which the returns on a given stock move with stock market.
a measure of dispersion that indicates the degree of relative association existing between two variables
A measure of the goodness of fit of the relationship between the dependent and
a measure of dispersion that
a measure of risk used when the standard deviations for multiple projects are approximately
A standardized statistical measure of the dependence of two random variables,
A measure of the tendency of two variables to change values
A statistic in which the covariance is scaled to a
Dividing investment funds among a variety of securities with different risk, reward, and
The process of spreading a portfolio over many investments to
Strategy designed to reduce risk by spreading the portfolio across many investments.
Investing so that all your eggs are not in the same basket. By spreading your investments over different kinds of investments, you cushion your portfolio against sudden swings in any one area. Segregated equity funds have become a popular and secure way for average investors to get the benefits of greater diversification.
An investment technique intended to minimize risk by utilizing a wide variety of investments within a portfolio. In a diversified portfolio, a decline in the value of one investment, for example, should be offset by the strength of other investments.
A market in which new information is very quickly reflected accurately in share
efficient capital markets
Financial markets in which security prices rapidly reflect all relevant information about asset values.
The combinations of securities portfolios that maximize expected return for any level of
A graph representing a set of portfolios that maximizes
Efficient Market Hypothesis
In general the hypothesis states that all relevant information is fully and
Efficient Markets Hypothesis
The hypothesis that securities are typically in equilibrium--that they are fairly priced in the sense that the price reflects all publicly available information on the security.
A portfolio that provides the greatest expected return for a given level of risk (i.e. standard
Information Coefficient (IC)
The correlation between predicted and actual stock returns, sometimes used to
a number (prefaced as a multiplier
Internally efficient market
Operationally efficient market.
The attempt to reduce risk by investing in the more than one nation. By
Investing in a variety of maturities to reduce the price risk to which holding long
Magic of diversification
The effective reduction of risk (variance) of a portfolio, achieved without reduction
A strategy that seeks to combine assets a portfolio with returns that are less than
Markowitz efficient frontier
The graphical depiction of the Markowitz efficient set of portfolios
Markowitz efficient portfolio
Also called a mean-variance efficient portfolio, a portfolio that has the highest
Markowitz efficient set of portfolios
The collection of all efficient portfolios, graphically referred to as the
Mean-variance efficient portfolio
Related: Markowitz efficient portfolio
A strategy whereby an investor simply invests in a number of different assets and
Operationally efficient market
Also called an internally efficient market, one in which investors can obtain
Principal of diversification
Highly diversified portfolios will have negligible unsystematic risk. In other
The part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.
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