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Also known as market risk, it is the risk inherent to the entire market or market segment that is impossible to diversify away. It can include interest rate changes, inflation, recessions, and geopolitical events.

Also known as specific risk, this risk is unique to a particular company or industry and can be reduced through diversification. Examples include business risks and financial risks.

The weighted sum of the expected returns of the assets in the portfolio. It reflects the average return an investor anticipates to receive from investing in a portfolio.

A measure of dispersion that captures the volatility of a portfolio's returns. It is calculated using the covariance between asset returns and the weights of the assets in the portfolio.

A measure for calculating risk-adjusted return. It is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Higher Sharpe ratios indicate better risk-adjusted returns.

An investment theory that allows investors to construct an optimal portfolio to maximize expected return for a given level of risk, based on statistical measures such as variance and correlation.

A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single asset's performance. It can reduce unsystematic risk of a portfolio, potentially improving the risk-reward tradeoff.

A set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal.

A theory on how risk-averse investors can construct portfolios to maximize expected return based on a given level of market risk. It emphasizes the benefit of diversification.

A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together, while a negative covariance means returns move inversely.

A measure of the performance of an investment relative to a suitable market index. An alpha of zero suggests that the investment is perfectly tracking the market index.

A measure that determines the degree to which two variables' movements are associated. The value ranges from -1 to 1 where 1 indicates perfect positive correlation and -1 indicates perfect negative correlation.

A model that describes the relationship between systematic risk and expected return for assets. It is used to determine a theoretically appropriate required rate of return of an asset.

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A beta of 1 indicates the asset has the same systematic risk as the market.