Chapter 2: Portfolio Risk and Return – Part I

In this section

• Characteristics of Major Asset Classes
  Characteristics of Major Asset Classes (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
• Risk Aversion, Utility Theory, and Portfolio Selection
  Risk Aversion, Utility Theory, and Portfolio Selection (CFA Level 1): Nature of Risk Aversion, Defining Risk Aversion, and Why Risk Aversion Matters in Portfolios. Key definitions, formulas, and exam tips.
• Calculating Mean Returns, Variance, Covariance, and Correlation
  Calculating Mean Returns, Variance, Covariance, and Correlation (CFA Level 1): Arithmetic Mean Return vs. Geometric Mean Return, Arithmetic Mean Return, and Geometric Mean Return. Key definitions, formulas, and exam tips.
• Building and Interpreting the Minimum-Variance Frontier
  Building and Interpreting the Minimum-Variance Frontier (CFA Level 1): Understanding the Opportunity Set, Concept of the Minimum-Variance Frontier, and Deriving the Frontier: Two-Asset Case. Key definitions, formulas, and exam tips.
• Effects of Correlation on Portfolio Risk
  Effects of Correlation on Portfolio Risk (CFA Level 1): Understanding Correlation, Mathematical Foundations and Formulas, and Diversification Benefit. Key definitions, formulas, and exam tips.
• Risk Premium Concepts and Market Segmentation
  Risk Premium Concepts and Market Segmentation (CFA Level 1): Test Your Knowledge of Risk Premiums and Market and Which of the following statements best describes the. Key definitions, formulas, and exam tips.
• Incorporating Leverage in Basic Return Analysis
  Incorporating Leverage in Basic Return Analysis (CFA Level 1): Understanding Leverage, Margin Accounts and Borrowed Capital, and Basic Return Analysis with Leverage. Key definitions, formulas, and exam tips.
• Downside Deviation and Expected Shortfall
  Downside Deviation and Expected Shortfall (CFA Level 1): Understanding Downside Deviation, Why Downside Risk?, and Downside Deviation Formula. Key definitions, formulas, and exam tips.
• Semi-Variance and Partial Moments
  Semi-Variance and Partial Moments (CFA Level 1): Semi-Variance: A Downside-Focused Measure, Formal Definition, and Comparing with Variance. Key definitions, formulas, and exam tips.
• Limitations of Mean-Variance Analysis
  Limitations of Mean-Variance Analysis (CFA Level 1): Key Assumptions of Mean-Variance Analysis, Markets Are Frictionless, and Normality of Returns. Key definitions, formulas, and exam tips.
• Reliability of Historical Data for Risk Estimation
  Reliability of Historical Data for Risk Estimation (CFA Level 1): Historical vs. Forward-Looking Approaches, Key Issues in Historical Data, and Survivorship Bias. Key definitions, formulas, and exam tips.
• Scenario and Sensitivity Analyses in Portfolio Return
  Scenario and Sensitivity Analyses in Portfolio Return (CFA Level 1): Foundations of Scenario and Sensitivity Analyses, Why These Analyses Matter, and Historical-Based Scenarios. Key definitions, formulas, and exam tips.
• Role of Time Horizon in Estimating Return and Risk
  Role of Time Horizon in Estimating Return and Risk (CFA Level 1): Why Time Horizon Matters, Short-Term vs. Long-Term Perceptions, and Volatility and the Clustering Effect. Key definitions, formulas, and exam tips.
• Impact of Liquidity on Asset Class Risk
  Impact of Liquidity on Asset Class Risk (CFA Level 1): Defining Liquidity Risk, Market Depth, and Lock-up Periods. Key definitions, formulas, and exam tips.
• Effects of Macroeconomic Variables on Asset Class Returns
  Effects of Macroeconomic Variables on Asset Class Returns (CFA Level 1): Key Macroeconomic Variables, GDP Growth, and Inflation. Key definitions, formulas, and exam tips.
• Diversification Across Geographical Regions
  Diversification Across Geographical Regions (CFA Level 1): Test Your Knowledge: Diversification Across Global Markets and portfolio manager invests in both domestic and. Key definitions, formulas, and exam tips.