Asset Allocation Based On Beta And Alpha

Asset allocation answers several questions. What risk-return trade-off are we comfortable with? In other words what amount of risk are we prepared to take to make a certain level of active return?

At every level of active return there is an equivalent amount of risk. Many portfolio managers are judged merely on the return they have achieved without subsequent analysis of the risk they took to produce that return. This is the reason why we have seen the advent of new rogue traders like Kweku Odoboli.

These traders want to make positions that give a certain amount of return so as to meet their stringent benchmarks. Asset allocation can be done using either alpha or beta drivers. Active return is the difference between the benchmark and the actual return. Alpha is more aggressive and aims to achieve returns in excess of the stated benchmarks. It focuses of arbitrage in the sense that it takes advantage of unbalanced market fundamentals.

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Beta drivers are the click traditional investment techniques that aim to meet the benchmarks. It involves the systematic capture of existing risk premiums. Beta drivers are used in constructing SAA. This type of allocation is not designed to beat the market and must meet the long-term funding goals of the organizations like defined benefit pension schemes.

Broad Classes of Alpha Drivers 1. Long or short investing 2.

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Absolute return strategies hedge funds 3. Market segmentation 5.

Non-linear return processes option-like payoff 6.]

Asset Allocation Based On Beta And Alpha Video

Understanding Alpha and Beta

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UNITED STATE SV GOLDEN SHIP TRADING CO	News Asset Allocation Based On Beta and Alpha Drivers. Published. 8 months ago. on. November 7, By. cavalera. Dec 01, · Asset allocation can be done using either alpha or beta drivers. The alpha drivers measure the manager’s skill to generate the so-called active return. Active return is the difference between the benchmark and the actual return. Alpha is more aggressive and aims to achieve returns in excess of the stated benchmarks. Asset Allocation Based On Beta and Alpha Drivers Asset allocation is a single of portfolio management's key concerns. Asset allocation responses several issues. What chance-return trade-off are we comfortable with? In other phrases what total of threat are we well prepared to choose to make.
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