Portfolio Theory

In addition to your class tuition and study materials, you will receive the following:


Exercises

• Exercises to re-affirm principles covered during the class

Other Extras

• Demonstrations, using Excel, of risk, correlation and the efficient frontier
  
• Certificate of attendance

Level: Introductory


Synopsis:
This course explains - in an intuitive, rather than mathematical, fashion - the theories and ideas behind modern investment management. It shows why it is important to consider not only the return an asset might provide but also its risk characteristics and its correlation with other investments within the portfolio. From this premise important factors, such as alpha and beta, can be explained, which in turn lead to the concept of portable alpha.


At the end of the course participants will be able to: Understand the basic statistical techniques and jargon used in investment management . Understand how risk is measured . Know what is meant by alpha and beta in relation to investment management . Understand the relationship between risk and return . Understand correlation and its significance in portfolio construction .


Prerequisites:
No prior knowledge is necessary, although basic equities and bonds understanding may prove helpful.


Suitable For:
Anyone working for, or with, the buy-side who would like to understand the underlying principles and jargon.


Statistical concepts

• The risk vs return trade-off
• The fundamentals of stats - what is a standard deviation?
• The normal distribution
• Probabilities - predicting the future?
• Measuring risk as the variation of returns - sigma, volatility
• Return distributions

Connecting risk and return

• Diversification - specific (idiosyncratic) vs. market (systematic) risk
• Stock betas
• The Capital Asset Pricing Model (CAPM)
• The Securities Markets Line (SML)
• Alpha

The mechanics of portfolio construction

• Calculating the expected return to a portfolio
• Correlation of asset returns
• Applying the idea of correlation to portfolio management
• Calculating the expected risk to a portfolio