Portfolio Management and Analysis Flashcards
6 cards from real Series 65 – Uniform Investment Adviser Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Portfolio Management and Analysis flashcards as text
What does 'convexity' describe in fixed income portfolio management?
Answer: The curvature in the price-yield relationship of a bond, indicating that duration changes as interest rates change
Convexity measures the curvature of the price-yield relationship and refines duration by capturing how the price sensitivity of a bond changes as interest rates move.
What is an 'immunization' strategy in bond portfolio management?
Answer: Matching the duration of a bond portfolio to a specific investment horizon to protect against interest rate risk
Immunization involves matching the duration of a bond portfolio to the investor's time horizon so that price risk and reinvestment risk offset each other, protecting the target return.
What is the primary difference between value at risk (VaR) and standard deviation as risk measures?
Answer: VaR estimates the maximum potential loss at a given confidence level over a specific time period; standard deviation measures overall return variability
VaR quantifies the maximum expected loss at a specific confidence level (e.g., 95%) over a given time horizon, while standard deviation measures total return variability without focusing on a specific loss threshold.
What does 'sector rotation' as an investment strategy involve?
Answer: Shifting portfolio allocations toward sectors expected to outperform during different phases of the business cycle
Sector rotation involves tactically reallocating assets toward sectors historically associated with outperformance during each phase of the business cycle (expansion, peak, contraction, trough).
What is the primary purpose of a 'core-satellite' portfolio construction approach?
Answer: Combining a broad, low-cost passive core with smaller active or specialized satellite positions to balance stability and outperformance potential
Core-satellite combines a diversified, low-cost passive core (providing stable market exposure) with active or specialized satellite positions that seek to generate alpha or targeted exposure.
What does a high correlation between two asset classes suggest about their diversification benefit?
Answer: High correlation reduces the diversification benefit because the assets tend to move together in the same direction
When two assets are highly correlated, they tend to rise and fall together, providing little diversification benefit; low or negative correlation is what reduces portfolio risk.