The index is a measure of the relative strength of the stock exchange. In the case of a portfolio of stocks, there is an index that reflects the Weighted Average of all the transactions on that stock market. So, the remaining portion of the risk in the portfolio of the investor is the only market risk that cannot be reduced by diversification. The investor diversifies his investments over a number of uncorrelated projects in order to eliminate his company-specific (diversifiable) risk. Every rational investor wants to maximize the return on his investment at the lowest possible risk. Sharpe and Markowitz are professors who had to develop of capital asset pricing model, which is considered to an important theory in the risk & return portion. In the case of a stock market, the inclination of stock to accelerate with the market is called beta. An investor only takes an additional risk, if the certain additional return is offered against that risk.īeta is the building block of CAPM theory. If there is a risk than definitely there must be some return against that risk, which is a logical thing to understand. It is related to the unfavorable socio-political and economic events that are taking place globally and that affects almost all the companies of the industry in a country like inflation, market interest rates, war, etc. It is that part of total risk that cannot be reduced through diversification.
The unfavorable random events of one project are equalized through the favorable events of other projects. It is the Risk that can be reduced through diversification in investments in uncorrelated projects. Risk of a project is composed of two types. Risk is measured in terms of standard deviation. For more information, please see the Resource page in this course and is the combination of dangers and opportunities, or the volatility or spread, or uncertainty of the future outcomes over investment is called risk. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price.
Also, the course contains several innovative features, including creative out-of-the-studio introductions followed by quick-hitting "Module in 60" countdowns that highlight what will be covered in each module, four "Faculty Focus" interview episodes with leading professors in finance, and a summary of each module done with the help of animations!
Learners are welcome to take this course even if they have not completed "Investments I: Fundamentals of Performance Evaluation," as the first module contain a review of investment fundamentals and regression analysis to get everyone up to speed. Segments of the portfolios of mutual funds that may be more likely to outperform and examples of strategies designed to “earn alpha” will also be introduced. You will learn about the fees charged to investors by mutual funds and the evidence regarding the relation between fees charged and fund performance. The course concludes by discussing the evidence regarding the performance of actively-managed mutual funds. and will learn about the evidence regarding the performance of individual investors in their stock portfolios. You will examine the investment decisions (and behavioral biases) of participants in defined-contribution (DC) pension plans like 401(k) plans in the U.S. You will be introduced to the two components of stock returns – dividends and capital gains – and will learn how each are taxed and the incentives provided to investors from a realization-based capital gains tax. In this course, you will start by reviewing the fundamentals of investments, including the trading off of return and risk when forming a portfolio, asset pricing models such as the Capital Asset Pricing Model (CAPM) and the 3-Factor Model, and the efficient market hypothesis.