Risk-free Asset
An asset whose returns are certain — zero standard deviation, zero correlation with all other risky assets, providing the risk-free rate, and plotting on the vertical axis of a portfolio graph because it carries no risk.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- BetaHow sharply a share moves relative to the market index — beta 1 moves with the index, above 1 amplifies it, below 1 dampens it. The standard measure of systematic risk.
- Market riskThe risk of loss from movements in market prices — one named category in a manager's risk framework, alongside credit, liquidity and operational risk, and the one measured with VaR and stress tests.
- Modern Portfolio TheoryMarkowitz's framework for building portfolios on expected return and risk together, in which the co-movement between holdings — not their individual riskiness — decides the risk of the whole.
Where this is taught
Free preparation for NISM Series XIX-E← All terms