medium · Frm Part 2 Risk & Investment Management
A risk analyst is comparing two hedge funds. Fund X has a Sharpe ratio of 2.5 but significant negative skewness. Fund Y has a Sharpe ratio of 1.2 and positive skewness.
Which fund is more likely to be favored by a 'Coherent' risk measure like Expected Shortfall (ES)?
- Fund X, because negative skewness is always offset by a higher risk premium.
- Fund X, because its higher Sharpe ratio implies superior risk-adjusted returns regardless of distribution shape.
- Fund Y, because ES requires the distribution to be normal to satisfy the subadditivity axiom.
- Fund Y, as ES is sensitive to tail severity which is penalized in negatively skewed distributions.
Sign up free to see the explanation and track your rank →
More Frm Part 2 Risk & Investment Management practice
- A hedge fund strategy captures frequent small gains but suff… — This risk profile is most
- A risk manager is evaluating an 'Illiquid Asset' (e.g., Priv… — Why is the 'Autocorrelatio
- An active manager has an Information Coefficient (IC) of 0.06 and a breadth (BR) of 400 in
- If the reported volatility is 10% and the first-order autocorrelation (φ) of returns is 0.
- In the context of Liquidity Risk, the 'Denominator Effect' refers to which of the followin
- If the manager effectively doubles the breadth (BR) of the strategy while maintaining the
- According to factor theory, why does an asset that pays off during 'bad times' (such as a
- If a position is removed from a portfolio, the change in total VaR is exactly equal to its