Can someone please explain what i"m missing… sample 2 goes with sortino ratio as appropriate measure to calculate risk adjusted performance because the company is implementing a call overwriting program. I remember somewhere in my reading that call overwriting (ie. writing calls) can be used to enhance returns. Okay i think i just answered my own question…but was thinking that both the sharpe and sortino have E® in the calculation so both would be overstated. I guess the difference is Sortino uses downside deviation only so would exclude the added upside deviation from the call overwriting program???
spoiler for sample 2 below… --------------------------------------------------------------------------- i missed that one as well. i thought whenever options were used, we couldn’t use measures that assumed a normal distribution. i realize that i’m completely wrong and may have imagined the whole thing. can you explain?
I made EXACTLY the same assumption and went with Return on Drawdown thinking both would be skewed by options.
that’s exactly what i did. so i didn’t imagine it.
can someone post a few mconscore details… i don’t know the question. i made a reasonable effort on weird ratios but no way i could answer any more than the most simple question.
mconscore?
cfasf1 Wrote: ------------------------------------------------------- > mconscore? wow, that was some weird “cut and paste” mistaken click… post the original idea/question.
i learned it now but really dont think the CFAI text drove this point home anywhere so they kind of snuck this one in on sample 2. “the sortino considers optionality and does not penalize for volatility derived from outsized positive performance”. I think the simple answer is while both 1) sharpe and 2) sortino would have inflated E®s, the added upside volatility is excluded by sortino given it only looks at downside deviation. I understand it now. Still think it was a low blow though.
it was on sample 2. i don’t want to ruin it for you if you’re going to take it. and i’m not sure if i remember the whole question… being an upstanding level 3 candidate, and being extremely paranoid, i didn’t do screenprints.
got it… thanks jm. since you already took the test. do you know why correlations are understated with appraisal data? i get the standard deviation being understated, but why correlations?
taht was a trick too…the wording was “improved covariance relations” which technically is what you get with lower correlations. The knee jerk reaction would be to scream FALSE when you see “improved covariance relations” cuz we’re so used to thinking in terms of “higher or lower” correlations. Lower correlations is the same thing as “improved correlation relations” Another stupid exam question as far as i’m concerned!
yeah… i was caught offguard by a few of those for sure. there were a few others, but can’t recall.
is that an institute and a schweser thing too? basically going with what i’d call “free form wording”? i’m thinking the actual exam isn’t like that.
this is the cfai sample though… feel like they can do it on the real thing.
jmychasi Wrote: ------------------------------------------------------- > taht was a trick too…the wording was “improved > covariance relations” which technically is what > you get with lower correlations. > > The knee jerk reaction would be to scream FALSE > when you see “improved covariance relations” cuz > we’re so used to thinking in terms of “higher or > lower” correlations. > > Lower correlations is the same thing as “improved > correlation relations” > > Another stupid exam question as far as i’m > concerned! “improved covariance relations” sounds like something i heard at the marriage counselors office. seriously, i thought sample exam 2 sucked. i got the sortino vs romad question wrong as well and only a 33.3% in ethics. i’ve NEVER had that bad a showing in ethics. i hate these new 3 mc questions and the horrible way they are worded for ethics. and after reading what all of you very bright people are saying i still don’t know wtf covariance relations are. back to the books tomorrow.
ok. sorrry about the rant. i’m just so damn tired of feeling a million miles away from passing or in some cases even understanding some of this sh*t. 
cheers!
you’re not alone, pica. i’ve had a bad case of that myself today.
pica, don’t be so hard on yourself… definitely some stuff is like mike tyson wording.
you wont find it in the books…just take a step back and know this: one of the main benefits of international investing is improved covariance relations because you are adding assets with lower correlations to the domestic portfolio. improved covariance is the same thing as saying lower covariance. poorly worded exam question.
hey guys on a completely weird tangent since i saw that i’m not the only one having a very rough day, i went to astrology.com. apparantly mercury is in retrograde (which is a bad thing? i guess) but it will be over tonight-- so here’s to a better day tomorrow!