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Risk-based performance attribution decomposes the performance of a portfolio based on various risk factors or risk exposures (see factor analysis). For complex or dynamic portfolios, risk-based profit attribution may have some advantages over methods which rely only on realized performance. This may be the case for some hedge fund strategies. [23]
Dynamic asset allocation is a strategy used by investment products such as hedge funds, mutual funds, credit derivatives, index funds, principal protected notes (also known as guaranteed linked notes) and other structured investment products to achieve exposure to various investment opportunities and provide 100% principal protection.
Consider a portfolio composed of 60 percent stocks and 40 percent bonds at the start of a bull market. Over time, that allocation will shift as stocks outperform bonds.
Example investment portfolio with a diverse asset allocation. Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. [1]
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
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Portfolio optimization is the process of selecting an optimal portfolio (asset distribution), out of a set of considered portfolios, according to some objective.The objective typically maximizes factors such as expected return, and minimizes costs like financial risk, resulting in a multi-objective optimization problem.
Fixed-income attribution therefore provides a much deeper level of information than is available from a simple portfolio performance report. Typically, such a report only shows returns at an aggregated level, and provides no feedback as to where the investor's true skills lie.