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Some use the acronym SAMURAI: a benchmark should be S - Specified in Advance A - Appropriate M - Measurable U - Unambiguous R - Reflective of Current Investment Thinking A - Accountable I - Investable In principle it is the responsibility of the decision maker (the board of the pension fund) to set the benchmark, otherwise if the choice is left to ...


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One might define a benchmark as the status quo. If you simply bought all the stocks in the S&P500 for example, you would realize the returns on that index and it takes no active management from you, or a fancy portfolio manager. It is the default investment strategy, and although it is indeed arbitrary, the usual ones (S&P, Dow, etc.) are often ...


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See http://www.princeton.edu/~yacine/leverage.pdf The leverage effect refers to the observed tendency of an asset’s volatility to be negatively correlated with the asset’s returns. Typically, rising asset prices are accompanied by declining volatility, and vice versa. The term “leverage” refers to one possible economic interpretation of this ...


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I assume that risk it measured here in volatility. Then a portfolio with 100*$w$ percent invested in A and 100*$(1-w)$ percent invested in B has the annual variance $$ v = w^2 0.25^2 + 2* 0.5 w(1-w) 0.25*0.5 + (1-w)^20.5^2. $$ Searching for the portfolio with the samllest variance is equivalent to searching for the smallest volatility. To get the minimum ...


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You are looking for the minimum variance portfolio of two assets, assuming "risk" translates into volatility (variance) here. So what you would do mathematically speaking is introducing a variable $w\in[0,1]$ which is the weight of stock A (say) in the portfolio, calculate the "risk" - which is the variance - of the portfolio $wA+(1-w)B$ and then solve for ...



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