0
What else can I help you with?
What are the two key ideas of modern portfolio theory?
The two key ideas of modern portfolio theory are diversification and the trade-off between risk and return. Diversification involves spreading investments across different assets to reduce risk, while the risk-return trade-off suggests that investors should seek an optimal balance between risk and potential return based on their risk tolerance.
What are systematics?
Systematics is the scientific study of the diversification of living organisms, their relationships, and classification into hierarchical groupings. It aims to reconstruct the evolutionary history of species based on shared characteristics and genetic relationships, ultimately providing a framework for understanding the diversity of life on Earth.
What happens when derstification occurs?
Diversification occurs when a company expands its product line or enters new markets to reduce risk and increase revenue sources. It can help to stabilize the business by spreading out investments and opportunities for growth. However, diversification can also lead to higher costs, lack of focus, and potential dilution of brand identity if not managed effectively.
What happens when an individual asset in increased?
When an individual asset is increased, it can lead to greater diversification in an investment portfolio, potentially reducing overall risk. However, it can also increase exposure to risks associated with that specific asset, such as market volatility or concentration risk. Regular monitoring and adjusting of asset allocations may be needed to maintain desired risk levels.
When was Systematic Botany created?
Systematic Botany was created in 1976.
What is the diversification of Risk?
Diversification of risk means reduction of risk. Merely reducing risk (and thereby reducing return proportionately) doesn't amount to diversification. Diversification in its true sense represents systematic reduction of risk in such a manner that return per unit of risk increases. By K S JOLLY
Can diversify firm specific risk at all?
Yes, firms can diversify firm-specific risk, which is the risk associated with individual companies that can be mitigated through diversification. By investing in a variety of assets across different industries and sectors, investors can reduce the impact of any single company's poor performance on their overall portfolio. However, firm-specific risk cannot be eliminated entirely; it can only be reduced through effective diversification strategies. Ultimately, systematic risk, which affects the entire market, remains unavoidable and cannot be diversified away.
What is contrast systematic and unsystematic risk?
Systematic risk, also known as market risk, affects the overall market and cannot be diversified away. It includes factors like interest rates, inflation, and economic downturns. Unsystematic risk, also known as specific risk, is unique to a particular company or industry and can be minimized through diversification. It includes factors like management changes, lawsuits, and competition.
Does standard deviation measure systematic or unsystematic risk?
Standard deviation is a measure of total risk, or both systematic and unsystematic risk. Unsystematic risk can be diversified away, systematic risk cannot and is measured as Beta.
What type of risk is avoidable through proper diversification?
portfolio risk
Diversification is an investment strategy to?
Diversification enables the investor to reduce risk by spreading investments among different companies and types of investing.
How does diversification affect financial institions credit risk exposure?
Generally, diversification helps reduce the overall credit risk exposure for financial institutions by reducing their overall expected chargeoff rates.
What is an example of residual risk?
It is the risk that remains after others have been eliminated.
Distinguish between systematic and unsystematic risks?
It is the risk which is due to the factors which are beyond the control of the people working in the market and that's why risk free rate of return in used to just compensate this type of risk in market. This is the risk other than systematic risk and which is due to the factors which are controllable by the people working in market and market risk premium is used to compensate this type of risk. Total Risk = Systematic risk + Unsystematic Risk
Distingush between systematic and unsystematic risks which is often regarded as the only relevant risk and why?
It is the risk which is due to the factors which are beyond the control of the people working in the market and that's why risk free rate of return in used to just compensate this type of risk in market. This is the risk other than systematic risk and which is due to the factors which are controllable by the people working in market and market risk premium is used to compensate this type of risk. Total Risk = Systematic risk + Unsystematic Risk As systematic risk is beyond the control of people working in market that;s why it is defenately not the relevent risk because anything not controllable is irrelevant and that's why unsystematic risk is the relevant risk because it is in the control of investor to in which security to invest or not.
What are the advantages and disadvantages of capital asset pricing model?
It considers only systematic risk, reflecting a reality in which most investors have diversified portfolios from which unsystematic risk has been essentially eliminated. It generates a theoretically-derived relationship between required return and systematic risk which has been subject to frequent empirical research and testing. It is generally seen as a much better method of calculating the cost of equity than the dividend growth model (DGM) in that it explicitly takes into account a company’s level of systematic risk relative to the stock market as a whole. It is clearly superior to the WACC in providing discount rates for use in investment appraisal.
What Diversification is an investment strategy to?
reduce risk by spreading investments among several assets.
