Guide
Lessons meant to be read in order. Each one only uses what came before it.
Portfolio & risk
Risk and return, diversification, the efficient frontier and CAPM.
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- Returns and volatilitySimple and log returns, standard deviation, annualising and the square-root-of-time rule.
- Diversification and correlationTwo-asset portfolios, the role of covariance, and why correlation drives risk down.
- The efficient frontier and the capital market lineMean–variance optimisation, the minimum-variance portfolio, a risk-free asset and the tangency portfolio.
- Risk aversion and the optimal complete portfolioMean–variance utility, indifference curves, the risk-aversion coefficient and the best point on the capital allocation line.
- CAPM, beta and the security market lineSystematic versus idiosyncratic risk, beta as market sensitivity, expected return and alpha.
- Performance measures: Sharpe, Treynor, Jensen and information ratioRisk-adjusted performance, which risk each measure charges for, and why the rankings can disagree.
- Factor models and systematic riskThe single-index model, splitting systematic from specific variance, and multi-factor models.
- Value at Risk and expected shortfallLoss quantiles, the tail beyond them, normal versus fat-tailed returns, and the square-root-of-time rule.
Check yourself
Questions from the lessons of this series. Open a lesson's group whenever you want to test yourself.