________ provide a relative measure for the riskiness of a strategy.
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A. B. C. D. E.B
Benchmarks, including market indexes, manager universes and normal portfolios, provide a relative measure for the riskiness of a strategy.
The correct answer is A. Volatility measures.
Volatility measures provide a relative measure for the riskiness of a strategy. Volatility refers to the degree of fluctuation or variation in the returns of a strategy or investment. It is commonly used as a proxy for risk because investments with higher volatility tend to have a greater range of potential outcomes and are generally considered riskier.
Volatility measures can help investors and analysts assess the risk associated with a particular investment strategy or portfolio. By quantifying the volatility, investors can compare different strategies or investments and make more informed decisions based on their risk tolerance.
Common volatility measures include standard deviation, beta, and value at risk (VaR).
Standard Deviation: It measures the dispersion of returns around the average or expected return. A higher standard deviation indicates higher volatility and, therefore, higher risk.
Beta: It measures the sensitivity of an investment's returns to the overall market returns. A beta greater than 1 indicates higher volatility compared to the overall market, while a beta less than 1 indicates lower volatility.
Value at Risk (VaR): It estimates the maximum potential loss of an investment or portfolio within a given confidence level and time horizon. Higher VaR indicates higher volatility and risk.
These volatility measures provide relative comparisons of riskiness across different investment strategies. Investors can use them to assess the risk-return tradeoff and select strategies that align with their risk preferences and investment goals.
While benchmarks, indexes, investor universes, and disclosures may provide valuable information for assessing investments, they do not directly measure the riskiness of a strategy. Benchmarks and indexes serve as performance benchmarks or reference points to evaluate the performance of an investment strategy against a specific market or sector. Investor universes refer to groups of investors with similar characteristics, and disclosures are information provided by investment managers about their strategies, holdings, and risks. While these factors may indirectly inform about risk, they are not specifically designed as measures of riskiness.