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Absolute Returns |
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Returns unrelated to
and independent of any index measure of performance. |
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Annualised Return |
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The average annual
compound return. |
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Arbitrage |
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Taking strategic
advantage of differentials in the price of securities such as
stocks, bonds and currencies to make opportune profits. |
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Correlation |
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Correlation measures
the degree to which two investments tend to move in step. The
number is always between negative 1 and 1. A correlation of 1
indicates that the investments always move identically. A
correlation of negative 1 indicates that the one investment
always has an exactly opposite move to the other. |
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Derivatives |
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Investment contracts
that allow investors to purchase or sell exposure to an index or
security to bring about a long or short position in the
underlying investment. Therefore, they are a derivative of the
underlying primary investment. |
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Futures |
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A futures contract
obliges one party to buy and the other to sell a specified
quantity of a nominated underlying financial instrument, or
commodity at a specific price, on a specified date in the
future. |
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Gearing/Leverage |
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The practice of
borrowing money which is then invested. |
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High
Water Mark |
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A level
of absolute performance that must be attained before
performance fees are earned. |
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Maximum Drawdown |
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This is
the largest overall drop in the investment's value
that occurred in a given period before it returned
to its previous high. Large maximum drawdowns
indicate higher risk. |
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Options |
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The
right to buy or sell a security at a fixed price
within a pre-determined time frame. |
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Sharpe Ratio |
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The
Sharpe ratio allows comparison of risk/return
between two or more investments. Higher Sharpe
ratios are preferable to low ones. An investment’s
Sharpe ratio is its return in excess of the
risk-free rate (such as the 90-day US Treasury Bill
rate) divided by its volatility. |
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Short
Selling |
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Selling
shares that are not owned by a seller to a third
party on the assumption that the price of the shares
will fall prior to delivery, thus enabling the
seller to profit. However, if the price of the
shares rises the seller will make a loss. |
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Volatility |
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Volatility is measured by the standard deviation of
returns around their mean. This measure gives an
indication of the level of risk in a portfolio. The
higher the volatility, the higher the risk. |
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