Alpha measures the excess return of an investment relative to its expected return. Standard deviation measures the dispersion of returns around the mean return, indicating the investment's volatility. Beta measures the systematic risk of an investment relative to the market. R-squared indicates the proportion of variability in one investment's returns explained by another investment.

Active management involves frequent trading and attempts to outperform the market. Tactical asset allocation involves adjusting the portfolio's asset allocation based on short-term market outlook. Strategic asset allocation sets long-term target allocations and maintains them through periodic rebalancing. Market timing involves making investment decisions based on predictions of future market movements.

A) Systematic risk, also known as market risk, cannot be diversified away. B) Unsystematic risk, also known as specific risk, can be diversified away by holding a well-diversified portfolio. C) Market risk is systematic and cannot be eliminated through diversification. D) Interest rate risk is a component of systematic risk and cannot be fully diversified away.

A) EMH acknowledges that markets are not always perfectly efficient but are efficient in reflecting available information. B) EMH argues that it's difficult for investors to consistently outperform the market due to market efficiency. C) EMH states that market prices reflect all available information, making it difficult to gain an edge through analysis. D) Market prices can deviate from rationality in the short term, but EMH focuses on information efficiency.

A) Alpha measures the excess return of an asset compared to its expected return. B) Beta measures the systematic risk of an asset, reflecting its sensitivity to market movements. C) R-squared indicates the proportion of variability in one asset's returns explained by another asset. D) Standard deviation measures the total risk of an asset's returns.

A) Past returns are not a component of CAPM's expected return calculation. B) Standard deviation represents total risk, but CAPM focuses on systematic risk. C) CAPM states that the expected return of an asset is proportional to its systematic risk, often measured by beta. D) CAPM assumes away unsystematic risk through diversification.

Growth investing focuses on companies with high growth potential. B) Value investing seeks stocks that are undervalued based on fundamental analysis like price-to-earnings ratio. C) Momentum investing capitalizes on the continuation of existing trends. D) Contrarian investing involves going against prevailing market trends.

A) Low transaction costs are a characteristic of an efficient market. B) Rapid dissemination of information ensures that prices reflect all available information. C) No arbitrage opportunities indicate that prices quickly adjust to new information.

A) The efficient frontier includes portfolios that maximize return for a given level of risk. B) It's not solely about lowest volatility but about achieving the maximum return for a given level of risk. C) The efficient frontier considers risk-adjusted returns, not just Sharpe ratio.

A) Tracking error measures the deviation of portfolio returns from the benchmark. B) Sharpe ratio evaluates the excess return of a portfolio per unit of risk (usually standard deviation). C) Treynor ratio measures the excess return per unit of systematic risk. D) Sortino ratio measures downside risk-adjusted return.