Options are "derivative investments", meaning the price movements of the investments are based on the price movements of another financial product. The financial product from which the derivative is obtained is called the "underlying."Call and Put OptionsOptions are contracts that provide the buyer the right to buy or sell an ... Read More

What is a Strike Price?In the case of an option contract, the "strike price" is the predetermined and agreed-upon price at which a specific security may be bought (by the call option holder) or sold (by the put option holder) until or upon the expiration of the contract. The term ... Read More

The security market line (SML) is a graph that is drawn with the values obtained from the capital asset pricing model (CAPM). It is a theoretical presentation of expected returns of assets that are based on systematic risk.Non-diversifiable risk is not represented by the SML. In a broader sense, the ... Read More

In simple words, both correlation and covariance show the relationship and the dependency between two variables.Covariance shows the direction of the path of the linear relationship between the variables while a function is applied to them.Correlation on the contrary measures both the power and direction of the linear relationship between ... Read More

In a study done to link the variance with returns, it was found that both genres of portfolio construction measures – minimum volatility and low volatility – deliver market return more than the average. Their information ratios (IRs) also are not statistically significant. It was also found that both strategies ... Read More

Capital Market Line (CML) is a line that talks about a portfolio that accurately combines both risk and returns. It is a graphical representation that shows a portfolio’s expected and required return based on a chosen level of risk. The portfolios that are on the CML optimize the required risk ... Read More

Mean-Variance AnalysisMean-Variance Analysis is a process that investors utilize to make investment decisions based on their risk tolerance. Investors actually consider the potential variance given by the volatility of returns produced by an asset in the market against the required expected returns of that asset. The mean-variance analysis looks into ... Read More

What is CAPM?The Capital Asset Pricing Model (CAPM) describes the association between the anticipated return and the risks of investing in a security. It represents the fact that the expected return on an asset is equal to the risk-free return rate plus a premium for taking the risk that is ... Read More

A market portfolio is an assumed or virtual portfolio where every available type of asset is included in proportion to its market value. An investment portfolio is a group of investments that are owned and managed by one individual or organization. A typical investment portfolio may include numerous types of ... Read More

The Capital Asset Pricing Model (CAPM) has some assumptions upon which it is built. Here are the five most influential assumptions of CAPM −The investors are risk-averseCAPM deals with risk-averse investors who do not want to take the risk, yet want to earn the most from their portfolios. Diversification is ... Read More