Financial Mgt
Risk & Return
Q1: Which rules should be in mind during selection of stocks for portfolio investment?
1. Allocation
2. Sectors
Basic Materials
Capital Goods
Communication
Consumer Cyclical
Energy
Financial
Health Care
Technology
Transportation
3. Stock Selection
4. Monitor
Q2: Distinguish between market risk & diversifiable risk. Can market risk be avoided?
Market Risk
The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks.
Diversifiable risk
The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market. This risk can be virtually eliminated from a portfolio through diversification also called unsystematic risk.
***Q3: Define systematic risk & unsystematic risk with example. What is Beta (β) ?
Unsystematic risk, also known as "specific risk," "diversifiable risk" or "residual risk," is the type of uncertainty that comes with the company or industry you invest in. Unsystematic risk can be reduced through diversification. For example, news that is specific to a small number of stocks, such as a sudden strike by the employees of a company you have shares in, is considered to be unsystematic risk. Systematic risk, also known as "market risk" or "un-diversifiable risk", is the uncertainty inherent to the entire market or entire market segment. Also referred to as volatility, systematic risk consists of the day-to-day fluctuations in a stock's price. Volatility is a measure of risk because it refers to the behavior, or "temperament," of your investment rather than the reason
Q1: Which rules should be in mind during selection of stocks for portfolio investment?
1. Allocation
2. Sectors
Basic Materials
Capital Goods
Communication
Consumer Cyclical
Energy
Financial
Health Care
Technology
Transportation
3. Stock Selection
4. Monitor
Q2: Distinguish between market risk & diversifiable risk. Can market risk be avoided?
Market Risk
The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks.
Diversifiable risk
The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market. This risk can be virtually eliminated from a portfolio through diversification also called unsystematic risk.
***Q3: Define systematic risk & unsystematic risk with example. What is Beta (β) ?
Unsystematic risk, also known as "specific risk," "diversifiable risk" or "residual risk," is the type of uncertainty that comes with the company or industry you invest in. Unsystematic risk can be reduced through diversification. For example, news that is specific to a small number of stocks, such as a sudden strike by the employees of a company you have shares in, is considered to be unsystematic risk. Systematic risk, also known as "market risk" or "un-diversifiable risk", is the uncertainty inherent to the entire market or entire market segment. Also referred to as volatility, systematic risk consists of the day-to-day fluctuations in a stock's price. Volatility is a measure of risk because it refers to the behavior, or "temperament," of your investment rather than the reason