D.31 Asset allocation and portfolio diversification Flashcards

The process of distributing investments among different asset classes (e.g., stocks, bonds, cash) to balance risk and return.

A risk management strategy that involves spreading investments across various asset classes and sectors to reduce exposure to any single risk.

An investor’s ability and willingness to endure fluctuations in investment value based on financial goals, time horizon, and personal comfort with risk.

A financial framework that aims to optimize portfolio return for a given level of risk by selecting a mix of assets with uncorrelated returns.

A statistical measure that indicates how two investments move in relation to each other, ranging from -1 to +1.

A long-term investment strategy that establishes fixed target allocations for asset classes based on an investor’s objectives and risk tolerance.

A short-term investment approach that adjusts asset class weights based on market conditions or economic outlook to enhance returns.

The process of periodically adjusting a portfolio’s asset allocation back to its original target mix to maintain the desired risk profile.

A graphical representation of optimal portfolios that provide the highest expected return for a given level of risk.