About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
10.5 Risk Management in the Portfolio Context Explained

10.5 Risk Management in the Portfolio Context - 10.5 Risk Management in the Portfolio Context

Key Concepts

Risk Management

Risk Management in the portfolio context involves identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events.

Example: A portfolio manager identifies market risk, credit risk, and liquidity risk in a portfolio and implements strategies to mitigate these risks.

Diversification

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding.

Example: A portfolio includes stocks from various sectors (technology, healthcare, finance) and bonds from different issuers to reduce the impact of any single asset's poor performance.

Hedging

Hedging is a strategy used to reduce the risk of adverse price movements in an asset. By taking an offsetting position in a related asset, investors can protect their portfolio from significant losses.

Example: An investor holding a large position in oil stocks might buy put options on oil futures to protect against a sudden drop in oil prices.

Asset Allocation

Asset Allocation is the process of dividing a portfolio among different asset categories, such as stocks, bonds, and cash. The goal is to allocate assets in a way that balances risk and return according to an individual's financial goals and risk tolerance.

Example: A conservative investor might allocate 40% of their portfolio to bonds for stability, 40% to stocks for growth, and 20% to cash for liquidity.

Risk-Adjusted Returns

Risk-Adjusted Returns measure the performance of an investment by adjusting for risk. This allows investors to compare the performance of different investments on a more equal footing.

Example: The Sharpe Ratio is a common measure of risk-adjusted return. It divides the excess return of an investment over the risk-free rate by the investment's standard deviation.

Stress Testing

Stress Testing is a method used to determine how a portfolio would perform under extreme market conditions. It helps investors understand the potential impact of adverse events and prepare for them.

Example: A portfolio manager simulates the impact of a 20% drop in the stock market on their portfolio to assess whether the portfolio can withstand such a scenario without significant losses.

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