Beta

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Main Concept Beta measures a stock’s exposure to movements in the market Beta of 1 indicates perfect co-movement with the market. Negative beta values indicates that the stock moves opposite of the market.   Beta and Risk As mentioned in a previous note then a stock has two types of risk, Non-systemic risk, and systemic … Continue reading Beta

Originals by Adam Grant

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The book was a good read, and I highly recommend it for others. Adam Grant decomposes some of the principles behind doing original work and provide several interesting references to historical originals such as Steve Jobs and Mozart. He also provides examples of what may be barriers for people to move towards more original thinking. … Continue reading Originals by Adam Grant

Modern Portfolio Theory

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Main Idea Investors will maximize return for any given level of risk Risk can be reduced by creating a diversified portfolio   Expected return and standard deviation The modern portfolio theory combines standard deviation and expected return. If a stock has an expected return of 8% with a 10% standard deviation then the stock can … Continue reading Modern Portfolio Theory

Two Types of Risk

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The risk of an asset is measured by the historic variance of returns. It is calculated by the standard deviation of the historical returns or average returns of an asset. The standard deviation contains two types of risk. Firm-specific risk (idiosyncratic): This risk has little or no correlation with the market and is specific for … Continue reading Two Types of Risk