Asset Allocation Based On Beta And Alpha Drivers Essay

841 Words4 Pages
Asset Allocation Based On Beta and Alpha Drivers By Elisha Chikosi | Submitted On January 16, 2013 Recommend Article Article Comments Print Article Share this article on Facebook Share this article on Twitter Share this article on Google+ Share this article on Linkedin Share this article on StumbleUpon Share this article on Delicious Share this article on Digg Share this article on Reddit 1 Share this article on Pinterest Expert Author Elisha Chikosi Asset allocation is one of portfolio management 's primary concerns. Asset allocation answers several questions. What risk-return trade-off are we comfortable with? In other words what amount of risk are we prepared to take to make a certain level of active return? At every level of active return there is an equivalent amount of risk. Many portfolio managers are judged merely on the return they have achieved without subsequent analysis of the risk they took to produce that return. This is the reason why we have seen the advent of new rogue traders like Kweku Odoboli. These traders want to make positions that give a certain amount of return so as to meet their stringent benchmarks. Asset allocation can be done using either alpha or beta drivers. The alpha drivers measure the manager 's skill to generate the so-called active return. Active return is the difference between the benchmark and the actual return. Alpha is more aggressive and aims to achieve returns in excess of the stated benchmarks. Alpha drivers are normally

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