Subject 3
Connecting performance, macroeconomics, and diversification
Move from market conditions to allocation and finally risk-adjusted performance evaluation.
Trace the transmission path
Explain how rates, inflation, currency, and the business cycle affect earnings, bond prices, and allocation.
Diversification depends on correlation
Owning more assets does little when they move together. Understand how covariance changes portfolio risk.
Evaluate return with risk and benchmark
Separate raw return from risk-adjusted performance and check whether the benchmark and period are appropriate.