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Covariance is a statistical tool that is used to determine the relationship between the movements of two random variables. When two stocks tend to move together, they are said to have a positive covariance; when they move back, the covariance is negative. Covariance is different from the correlation coefficient, a measure of the strength of a correlation. Covariance is an important tool in modern portfolio theory, used to determine which securities should be invested in a portfolio. Portfolio risk and volatility can be reduced by pooling assets with a negative covariance. Active Management
September 25, 2022 Active management includes making decisions to buy and sell assets in a portfolio. Aggressive Investment Strategy
September 25, 2022 Aggressive investing takes more risk in pursuit of greater returns. Annual Return
September 25, 2022 Annual or yearly return is a measure of how much an investment has increased on average each year over a period of time. Asset Management
September 25, 2022 The goal of asset management is to maximize the value of an investment portfolio over time while maintaining an acceptable level of risk. Assets Under Management (AUM)
September 25, 2022 Assets Under Management (AUM) is the total market value of investments that an individual or entity manages on behalf of investors. Attribution Analysis
September 25, 2022 Attribution analysis is an evaluation tool used to explain and analyze the performance of a portfolio (or portfolio manager), especially when compared to a certain benchmark. Basket Trade
September 25, 2022 Basket trading is a portfolio management strategy used by institutional investors to buy or sell a large number of securities at the same time. Benchmark
September 25, 2022 Benchmark is a standard criterion for measuring performance. Bottom-Up Investing
September 25, 2022 Investing from the bottom up is an investment approach that focuses on the analysis of individual stocks and downplays the importance of macroeconomic and market cycles. Cost Basis
September 25, 2022 The cost basis is the initial purchase price of the asset for tax purposes. Delta Neutral
September 25, 2022 Delta-neutral portfolio strategy, which uses multiple positions with positive and negative delta balancing, so the total asset delta is zero. Disintermediation
September 25, 2022 De-intermediation is the process of removing one or more intermediaries from a transaction, supply chain, or decision-making process. Diversification
September 25, 2022 Diversification is a strategy that mixes a wide variety of investments in a portfolio in an attempt to reduce the portfolio’s risk. Efficient Frontier
September 25, 2022 The efficient frontier includes investment portfolios that offer the highest expected return for a given level of risk. Equity Risk Premium
September 25, 2022 Equity risk premium is the excess return earned by an investor when he invests in the stock market at the risk-free rate. Geographical Diversification
September 25, 2022 Geographic diversification is a way to reduce the risk of a portfolio by avoiding excessive concentration in any one market. Gunslinger
September 25, 2022 Arrows are portfolio managers or traders who tend to take high-risk or aggressive positions in the market. Hands-Off Investor
September 25, 2022 A laissez-faire investor is a more passive investor who prefers to allocate assets and other investment decisions and then make minor adjustments over time. Homemade Dividends
September 25, 2022 Self-made dividends mean a category of investment income that results from a partial sale of an investor’s portfolio. Horizon Analysis
September 25, 2022 Horizon analysis compares the predicted discounted return on a security or the total return on an investment portfolio over several time periods, often referred to as the investment horizon. Hub and Spoke Structure
September 25, 2022 The hub and beam structure in investment uses multiple portfolio managers or sub-funds, known as “spokes” or “feeders”, who invest in a “center” or “master fund”. Information Coefficient (IC)
September 25, 2022 The Information Ratio (IR) is a measure used to assess the qualifications of an investment analyst or an active portfolio manager. Investment Analysis
September 25, 2022 Investment analysis involves researching and evaluating a security or industry to predict its future performance and determine its suitability for a particular investor. Investment Horizon
September 25, 2022 The investment horizon is the period of time during which the investor is ready to hold the portfolio. Investment Thesis
September 25, 2022 An investment dissertation is a written document that recommends new investments based on research and analysis of their potential returns.