Portfolio Theory - Part 1
This eCourse consists of two modules on Portfolio Management. A portfolio's objective is dependent upon an investor's future cashflow requirements and their tolerance for risk. Whatever the objective, there are two basic strategies to choose from – passive or active.
Module 1 starts by taking a detailed look at indexing, a strategy adopted by the passive management community. We then move on to discuss the market timing mentality of active portfolio managers. We conclude by examining an alternative approach to active management.
Beginning with the Sharpe ratio, which is the seminal work in the area of portfolio performance, Module 2 looks at a number of well-known rules that are used to choose between risky investments. In the securities markets, billions of dollars are shifted from one form of investment to another on the back of the results generated by these performance measures. It is therefore imperative that you understand all these rules, any assumptions underlying them and their relative advantages and disadvantages.
On completion of this course, you will be able to:
- Understand the buy-and-hold and indexing strategies adopted by passive investment managers
- Describe how a market timing strategy differs from an indexing strategy
- Explain what techniques are used in active portfolio management
- Calculate the Sharpe ratio and use it as a means of comparing alternative investments
- Calculate the Treynor ratio and explain how it differs to the Sharpe ratio
- Compare Jensen's alpha measure with both the Sharpe and Treynor ratios
- Describe the Treynor-Black ratio and the RAROC measure
Module 1: Portfolio Management - Passive & Active Strategies
Topic 1: Passive Investment Management
Topic 2: Active Portfolio Management
Topic 3: Active Portfolio Management – Techniques
Module 2: Portfolio Theory - Performance Measurement Models
Topic 1: The Sharpe Ratio
Topic 2: The Treynor Ratio
Topic 3: Jensen’s Alpha
Topic 4: Other Performance Measures