Hi, Please refer to the following portfolios. I don’t understand why Schweser notes say Lunar is better diversified than Bison. Please comment. Bison portfolio: Return = 14.1%, Std Dev = 31.5%, Beta =0.9 , Std dev of return below MAR = 15.1% Lunar portfolio: Return = 15.8%, Std Dev = 34.7%, Beta =1.3, Std dev of return below MAR = 15.9% Thanks, MG.
ok I just did that one. the reason as I understand lies in risk adjusted return ratios. for example: Bison outperformes when only systematic risk counts (treynor-alpha) but when unsystematic risk is involved in the ratios (sharpe) Bison falls behind Lunar. which is an evidence that it has more unsystematic risk. which means it’s less diversified. make sense?
basically it has less systematic risk (higher t, alpha) and more total risk (lower sharpe) so it has more unsystematic
Is there a RFR in this context ?
Sorry, RFR is 3.5%.