Portfolio Management   IV | Correlation and Diversification | Capital Asset Pricing Model (CAPM)
Channel: Edupedia World by Exambyte
Date: 2018-05-01

Portfolio Management:Concepts
-Correlation and Diversification
BETA (Measure of Systematic Risk)
Standard Deviation Vs BETA
-Standard deviation (σ) is a measure of Total Risk.
(i.e Systematic + Unsystematic Risk)

-Beta (β) is a measure of Systematic Risk.

For an individual investor who invests in
only one stock,σ is the relevant measure of risk.
For a portfolio investor who invests his money in
a portfolio,β is the relevant measure of risk.

Capital Asset Pricing Model (CAPM)
Assumptions-
1.Investors are risk averse.
2.Everyone in the market has the same forecasts.
3.Investment opportunities are the same for all
  investors.
4.No transaction costs or taxation.
5.Investors can borrow or lend freely at the risk
  free rate of return.

Security Market Line Vs Capital Market Line
-SML is a plot of Expected Return versus BETA
 (Systematic Risk)
-CML is a plot of Expected Return versus SD
 (Total Risk)

Arbitrage Pricing Theory (APT) & Sharp Index Model
-Explaination


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