Portfolio approach as an effective tool to manage risk
Not what you're looking for?
Why is the portfolio approach an effective tool to manage risk? Explain your answer.
Purchase this Solution
Solution Preview
(Not everyone believes in the portfolio approach, and there is also the fundamental analysis idea, which is completely contrary to the portfolio approach. Most people in the industry believe the fundamental approach. Theorists believe in the portfolio approach).
Assuming that we believe in the portfolio approach, and that all the conditions are met, it is an effective way to manage risk.
The modern portfolio theory (MPT) believes that stocks should not be selected on an individual basis. Rather, one should consider how stocks behave as a whole (i.e. covariance among stocks) and select them as a group to maximize return.
In finance, risk is define as the standard deviation of expected return. Consider ...
Purchase this Solution
Free BrainMass Quizzes
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Operations Management
This quiz tests a student's knowledge about Operations Management
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.