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Illuminant C is a standard illuminant defined by the CIE that represents average daylight with a correlated color temperature of approximately 6774K, used primarily in colorimetry to simulate natural daylight conditions. It is less commonly used today, having been largely replaced by Illuminant D series, which more accurately represents natural daylight spectral power distributions.
Factor Analysis is a statistical method used to identify underlying relationships between variables by reducing the number of observed variables into a smaller number of latent factors. It helps in understanding the structure of data, simplifying datasets, and is widely used in fields like psychology, finance, and social sciences to uncover hidden patterns and dimensions.
Arbitrage Pricing Theory (APT) is a multi-factor asset pricing model that explains the expected return of a financial asset based on the relationship between its return and various macroeconomic factors. Unlike the Capital Asset Pricing Model (CAPM), APT does not require a market portfolio and allows for multiple risk factors, making it more flexible in capturing the complexities of real-world financial markets.
The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks. It is used to estimate an investment's expected return based on its beta, the risk-free rate, and the expected market return, providing a framework for assessing the trade-off between risk and return.
Systematic risk refers to the inherent risk associated with the entire market or market segment, which cannot be eliminated through diversification. It is influenced by factors such as economic changes, political events, and natural disasters that affect the overall market environment.
Idiosyncratic risk refers to the inherent uncertainty and potential for loss associated with a specific investment or asset, independent of the overall market movements. It's the unique risk that can be mitigated through diversification, as it affects individual securities rather than the entire market.
Factor loadings represent the correlation coefficients between observed variables and latent factors in factor analysis, indicating the degree to which each variable is associated with a particular factor. High Factor loadings suggest that the variable is strongly influenced by the factor, making it crucial for interpreting the underlying structure of the data.
The beta coefficient measures a stock's volatility relative to the overall market, quantifying the risk associated with a security in comparison to the market as a whole. A beta greater than 1 indicates that the security is more volatile than the market, while a beta less than 1 suggests it is less volatile.
Risk premium is the additional return expected by an investor for holding a risky asset over a risk-free asset. It compensates investors for taking on the higher uncertainty and potential for loss associated with riskier investments.
Diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. By diversifying, investors can potentially achieve more stable returns and mitigate the impact of market volatility on their portfolios.
Asset pricing is the field of finance that determines the value of financial assets, incorporating risk, return, and market dynamics. It is essential for understanding investment decisions, portfolio management, and the behavior of financial markets.
Factor models are statistical tools used to describe the returns of financial assets by decomposing them into various factors, which can be either observable or latent. They help in understanding the underlying risks and drivers of asset returns, aiding in portfolio management and risk assessment.
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