# Glossary

Domain terms used across the Gyre Research platform and site copy.

## Portfolio analytics

**Active share.** Percentage of a portfolio's holdings that differ from its benchmark. 100% means completely different; 0% means identical to the benchmark.

**Alpha.** The portion of return not explained by market exposure (beta). Jensen's alpha is the most common definition.

**Asymmetric beta.** Decomposition of market beta into upside (β⁺, response to up-market moves) and downside (β⁻, response to down-market moves). See Gyre's Asymmetric Beta paper and the portal at asymmetricbeta.com.

**Attribution.** Decomposition of a portfolio's excess return versus its benchmark into explainable components. The Brinson-Hood-Beebower (BHB) model attributes to allocation, selection, and interaction effects.

**Beta.** Sensitivity of a security's return to the market's return. β = 1 means moves in line with market; β = 1.5 means 50% more responsive.

**Brinson attribution.** Classical performance attribution framework (Brinson, Hood, Beebower, 1986) decomposing excess return into allocation, selection, and interaction effects at segment level.

**Cariño linking.** Method for aggregating single-period Brinson attribution results into a multi-period attribution without residual. Alternative to arithmetic smoothing.

**CAPM.** Capital Asset Pricing Model — expected return = risk-free rate + beta × (market return − risk-free rate).

**Composite.** A group of portfolios managed to a similar strategy, reported together for GIPS compliance. Requires consistent construction rules and dispersion measurement.

**Concentration (HHI).** Herfindahl-Hirschman Index, sum of squared weights. Higher = more concentrated.

**Drawdown.** Peak-to-trough decline of an equity curve. Maximum drawdown is the worst observed historical dip.

**GIPS.** Global Investment Performance Standards. Voluntary standards published by CFA Institute governing how investment performance is calculated and presented. GIPS 2020 is the current version. Relevant sections:
- §1.A — composite presentation requirements
- §1.A.12 — 3-year annualized standard deviation requirement
- §2.A.2 — Modified Dietz / time-weighting of cash flows
- §2.A.6 — TWR methodology
- §2.A.7 — dividend inclusion
- §2.A.9 — accrual accounting
- §2.A.41 — alternative / illiquid asset valuation

**Greek letters (options).** Sensitivities of option prices to underlying parameters. Delta (price), gamma (rate of delta change), theta (time), vega (volatility), rho (interest rate).

**High-water mark (HWM).** The highest NAV a fund has previously reached. Performance fees only accrue on gains above the HWM to prevent fee compounding on the same appreciation.

**Hurdle rate.** Minimum return a fund must exceed before performance fees apply. Often set at SOFR or a short-term risk-free benchmark.

**IRR.** Internal Rate of Return — discount rate that makes the net present value of cash flows equal zero. The money-weighted return used for private equity and capital-call vehicles.

**Modified Dietz.** Return calculation method that time-weights external cash flows by their position within the period. Industry standard for monthly returns when large cash flows do not trigger full revaluation.

**MWR.** Money-Weighted Return — return including the impact of cash-flow timing (same as IRR for investment returns).

**NAV.** Net Asset Value — total fund market value minus liabilities, typically divided by number of shares outstanding.

**OLS.** Ordinary Least Squares — standard linear regression used to estimate betas from historical returns.

**Sharpe ratio.** Risk-adjusted return: (return − risk-free rate) / standard deviation of excess return.

**Sortino ratio.** Like Sharpe but uses only downside standard deviation in the denominator (penalizes downside volatility, not upside).

**TWR.** Time-Weighted Return — return calculation that geometrically links sub-period returns around each external cash flow. Industry standard for evaluating manager skill because it neutralizes the impact of investor-directed flows.

**VaR.** Value at Risk — the loss level exceeded with probability 1−α over horizon T. Example: 99% 1-day VaR of $1M means there is a 1% chance of losing more than $1M in one day. Computed via historical simulation, parametric (variance-covariance), or Monte Carlo.

## Risk statistics

**Covariance matrix.** Matrix of pairwise covariances between asset returns. Foundation for all factor-based risk calculations.

**Ledoit-Wolf shrinkage.** Method for regularizing a sample covariance matrix by combining it with a structured target (identity matrix, single-factor model, or constant-correlation). Improves estimation with limited history.

**Stress test.** Full-portfolio revaluation under a hypothetical or historical scenario (e.g., 2008 GFC repricing). Measures exposure to tail events not captured by normal-distribution VaR.

## Compliance and accounting

**Accrual.** Recognizing income or expense as it's earned/incurred rather than when cash changes hands. For bonds: OID accretion, market discount amortization, coupon interest accrual.

**IFRS 9.** International Financial Reporting Standard for financial instruments, including Expected Credit Loss (ECL) three-stage impairment model for bonds.

**OID.** Original Issue Discount — for bonds issued below par, the discount is accreted into income over the bond's life under IRC §1272 constant-yield rules.

**PFIC.** Passive Foreign Investment Company — a US tax classification that triggers punitive tax treatment unless specific elections are made.

**Pre-trade compliance.** Rule check performed before an order is sent to the market. Blocks orders that would breach mandate constraints.

**SOFR.** Secured Overnight Financing Rate — the primary USD risk-free reference rate since LIBOR retirement.

**Straddle.** IRS tax definition (IRC §1092): offsetting positions in actively traded property. Triggers complex loss-deferral rules.

**STP.** Straight-Through Processing — end-to-end trade processing without manual intervention.

**§1091 (IRC).** Wash-sale rule — loss on securities sold is disallowed if a substantially identical security is bought within 30 days before or after.

**§1256.** IRS mark-to-market regime for certain futures and options: 60% long-term / 40% short-term capital gains treatment regardless of holding period.

**Tax lot.** Single purchase of a security with a specific cost basis and acquisition date. Determines holding period and cost basis when the security is sold.

**Wash-sale disallowance.** Tax rule (IRC §1091) blocking loss recognition when the sold security is repurchased within a 61-day window centered on the sale.

## Operations

**Collateral.** Assets pledged to a counterparty to secure a derivatives position or margin loan.

**Corporate action.** Event that materially affects a security: stock split, dividend, spin-off, merger, rights issue, name change, etc.

**Custodian.** Financial institution that holds assets on behalf of a fund. Sources of truth for position and cash reconciliation.

**Factor model.** Return model decomposing security returns into systematic factor exposures (e.g., Fama-French size, value, momentum, quality) plus idiosyncratic residual.

**PMS.** Portfolio Management System — internal system of record for positions and transactions.

**Rebalance.** Trading activity to return the portfolio's weights toward target allocations, subject to turnover, tax, and compliance constraints.

**Variation margin.** Daily mark-to-market cash flow on a derivatives position.