CFA® Level I question of the day
24 October 2026 · Alternative Investments
Why is standard deviation an incomplete risk measure for a negatively skewed strategy?
Show the answer and explanation
Answer: B. Because it treats upside and downside variation identically
An investor does not regard an unexpected gain as risk. A symmetric measure applied to an asymmetric distribution misses what matters.
Why the other options are wrong:
- A. Because it cannot be computed from monthly data - Monthly data is the usual input for it.
- C. Because it requires at least ten years of history - No minimum applies, though a short history is a separate weakness.
Easy · AI.7.c
· learning outcome: Set out risk measures suited to return distributions that are not normal
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