Passive portfolio strategy


 

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Passive portfolio strategy

A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related: Active portfolio strategy.



Passive portfolio strategy

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Duplicative portfolio

Duplicative portfolio

Mainly applies to derivative products. Basket of stocks that imitates the price movement of another set of securities (e.g., S&P 500 index).


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A customized benchmark that includes all the securities from which a manager normally chooses, weighted as the manager would weight them in a portfolio.


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Well diversified portfolio

Well diversified portfolio

A portfolio that includes a variety of securities so that the weight of any security is small. The risk of a well-diversified portfolio closely approximates the systematic risk of the overall market, and the unsystematic risk of each security has been diversified out of the portfolio.


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