1- You are analysts comparing the performance of two portfolio managers using the Sharpe Ratio measurement. Manager A shows a return of 16% with a standard deviation of 10%. Manager B shows a return of 11% with a standard deviation of 6%. If the risk free rate is 5% which manager has the better risk adjusted return?
2-Diversification in an investment portfolio is a significant concept for creating the highest return for the least amount of risk. To create this diversification portfolio managers consider the covariance and correlation of investments. Explain how covariance and correlation help to create this diversification.
3-What does it mean if a domestic mutual fund has a beta coefficient of 1.25, an alpha coefficient of 2.25 and an R-Square of 75? Explain each measurement and then interpret what these measurements mean for this mutual fund.