The market is expected to generate a 11% return and the risk free rate is 4%. A portfolio manager has 80% of her capital allocated to stock A with a beta of 0.9, which generated a total return of 12%. 20% of her capital is allocated to stock B with a beta of 1.3, which generated a total return of 13%. What concept is demonstrated to explain the alpha being generated by the manager?
A) Capital allocation
B) Stock picking
C) Technical analysis
D) Fundamental analysis

Question

Quizplus · Accepted Answer

Capital allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds, and cash. The goal of capital allocation is to create a portfolio that meets the investor's risk and return objectives. In this case, the portfolio manager has allocated 80% of her capital to stock A and 20% of her capital to stock B. This allocation has resulted in a portfolio that has a higher return than the market, which is demonstrated by the alpha being generated by the manager.

The Market Is Expected to Generate a 11% Return and the Risk