Return
The gain or loss on an investment over time.
Absolute Return
The raw percentage gain or loss.
Relative Return
Return compared to a benchmark.
Risk-Adjusted Return
Return relative to risk taken (e.g., Sharpe ratio).
Volatility
The degree of price variation over time; measured by standard deviation.
Diversification
Reducing risk by spreading investments across uncorrelated assets.
Correlation
Measures how two assets move relative to each other; ranges from -1 to 1.
Covariance
Measures how two variables change together; scaled version of correlation.
Alpha
Excess return above a benchmark after accounting for risk.
Beta
Measures an asset’s sensitivity to market movements.
Sharpe Ratio
(Return – Risk-free rate) ÷ volatility; measures risk-adjusted performance.
Present Value (PV)
Current value of future cash flows discounted at an interest rate.
Future Value (FV)
Value of an investment at a future date given growth.
Discount Rate
The interest rate used to compute present value.
Yield to Maturity (YTM)
Total expected return if a bond is held to maturity.
Duration
A bond’s sensitivity to interest rate changes.
Convexity
Measures how a bond’s duration changes as interest rates change.
Derivative
A financial instrument whose value comes from an underlying asset.
Call Option
Gives the holder the right to buy an asset at a specific price.
Put Option
Gives the holder the right to sell an asset at a specific price.
Strike Price
The price at which an option can be exercised.
Implied Volatility
Market’s expectation of future price volatility.
Delta
Change in option price relative to a $1 change in the underlying.
Gamma
Rate of change of delta.
