can anybody give me a nice explanation on active factor risk and active specific risk?
Active factor risk is when you change around your factor sensitivities (a tracking portfolio is one that has similar factor exposure to say the S&P 500) You try to beat out the market by increasing some factor exposures while decreasing others. Active specific risk is when you change the weightings of your holdings. You decrease your weight in one stock and increase it in another, thats active specific risk.
Yeah. I am not real strong here, but I think about it as factor risk as sector bets and specific risk as stock picks.
I am sure there are better answer than mine. Here is what I know: total risk squared = active factor risk + active specific risk. Active factor risk is different sensitivity to various factor such as E/P, D/P etc from benchmark. Active specific risk is from different stocks or different weight of stocks from benchmark.
Also, a pure factor portfolio (I may have made that up, but its something like that) has positive exposure to one factor and 0 exposure to everything else.
i think the explanation in words is easy… it’s the implementation of the numbers and how they are displayed.
cool I understand not to be a biatch but for example do you remember the information ratio? when I see stuff I can’t remember reading it makes me cry
Active return/active risk
I actually can remember information ratio. (Portfolio Return-Benchmark Return)/Std Dev numerator.
florinpop Wrote: ------------------------------------------------------- > cool I understand > not to be a biatch but for example do you remember > the information ratio? when I see stuff I can’t > remember reading it makes me cry no, i’m in same boat as you… and i swear there is more than one info ratio scattered about. and this area seems like prime treynor black country this year… trust me though, you can get it down by saturday. i’m doing 4 till midnight monday-wednesday and then every waking moment thur-friday and early saturday (think i’ll purposely sleep early and get up early) i recommend combo’ing cfa and schweser for this last minute stuff.
What lance put is equivalent to what I put, but probably more intuitive
LanceTX Wrote: ------------------------------------------------------- > I actually can remember information ratio. > (Portfolio Return-Benchmark Return)/Std Dev > numerator. just to be clear the numerator is the average
I am off this week trying to make the most of it
ng30 Wrote: ------------------------------------------------------- > LanceTX Wrote: > -------------------------------------------------- > ----- > > I actually can remember information ratio. > > (Portfolio Return-Benchmark Return)/Std Dev > > numerator. > > > just to be clear the numerator is the average yep you guys got it
florinpop Wrote: ------------------------------------------------------- > I am off this week trying to make the most of it from seeing your posts, you seem to know your stuff… have some confidence that alot of stuff you’re good on won’t escape your mind. and really tackle want you don’t know. and then power skimming of all the stuff we already know fairly well.
Yes. If you look at CFAI, there are some stuff like FMCAR. Just try to start memorizing those. It feel like important thing.
ng30 Wrote: ------------------------------------------------------- > LanceTX Wrote: > -------------------------------------------------- > ----- > > I actually can remember information ratio. > > (Portfolio Return-Benchmark Return)/Std Dev > > numerator. > > > just to be clear the numerator is the average Right, I need a little summation key on my keyboard. Would make typing on this forum a lot easier. And a way to put a little hyphen over my words!!
disptra Wrote: ------------------------------------------------------- > Yes. If you look at CFAI, there are some stuff > like FMCAR. Just try to start memorizing those. > It feel like important thing. is it in the LOS??? i have looked at it a few times. are the mocks that difficult? i haven’t done one.
To make sure we are all on the same page with the concept: IR=active return/active risk=(Portfolio Return-Benchmark Return)/Std Dev (Portfolio Return-Benchmark Return) So active risk is made up of two pieces- factor risk and specific risk as we defined above. They are expressed as the standard deviation of returns minus your benchmark. If you made no active or specific bets, you would be the benchmark and have no active return and no active risk (e.g. index fund with perfect tracking ignoring fees).
westbruin Wrote: ------------------------------------------------------- > disptra Wrote: > -------------------------------------------------- > ----- > > Yes. If you look at CFAI, there are some stuff > > like FMCAR. Just try to start memorizing those. > > > It feel like important thing. > > is it in the LOS??? i have looked at it a few > times. > > are the mocks that difficult? i haven’t done one. Do not know about mock. I will do the mock tomorrow. By just by looking at these stuff, I know I did no spent enough time. Study mostly in Schweser. By the way, information ratio is like sharpe ratio using benchmark return instead of risk free rate.