What the Sharpe ratio's limitation is — it penalizes upside volatility as much as downside

What the Sortino ratio improves over Sharpe — only penalizes downside volatility

Sortino ratio focuses on downside deviation, unlike Sharpe ratio

What the Sharpe ratio measures — excess return per unit of risk: (R - Rf) / σ

Sharpe ratio: Excess return per standard deviation of portfolio returns

What an inverted yield curve signals — short-term rates exceed long-term, often predicts recession

Inverted yield curve typically signals an impending economic recession

What Modern Portfolio Theory says — diversification reduces risk without reducing expected return

MPT asserts that diversification lowers unsystematic risk while maintaining expected return

How does the concept of leverage in financial markets influence the risk-return tradeoff for investors?

Leverage amplifies potential returns but also increases risk exposure in financial markets

What volatility smile shows — implied volatility varies with strike price, contradicting Black-Scholes

Volatility smile indicates implied volatility's non-linearity with respect to strike prices