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For a two-asset portfolio, the risk of the portfolio, σp, is: 2222p1122112212222p11221212121212σ=wσ+wσ+2wσwσρorσ=wσ+wσ+2wwcovcov since ρ=σσ where σi is the standard deviation of asset i's returns, ρ12 is the correlation between the returns of asset 1 and 2, and cov12 is the covariance between the returns of asset 1 and 2. Problem What is the portfolio standard deviation for a two-asset portfolio comprised of the following two assets if the correlation of their returns is 0.5? Asset A Asset B Expected return 10% 20% Standard deviation of expected returns 5% 20% Amount invested $40,000 $60,000
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What is A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio It is this aspect of portfolios that allows investors to combine stocks?
Beta.
How do you calculate absolute risk?
=incidence
How to calculate Risk probability?
"Risk probability" does not quite make sense, perhaps you mean just how to calculate risk. There are many formulas and methods, a lot of them highly complex mathematical models. Risk calculation is an important subset of portfolio theory. For the simplest cases, consider some of the following definitions: * the greatest dive that a stock took over a given historical time period. For example, if stock A dropped 30% maximum over past 5 years before rebounding, and stock B dropped 40% maximum over the same period - then by this metric you can see that stock B is riskier. * standard deviation of the returns over a historical time period. Take as your data set the prices a stock assumed over the last 5 years daily. You can calculate the standard deviation of this data set. The standard deviation is a measure of risk.
What is the capital asset pricing model?
The CAPM is a model for pricing an individual security (asset) or a portfolio. For individual security perspective, we made use of the security market line (SML) and its relation to expected return and systematic risk (beta) to show how the market must price individual securities in relation to their security risk class. The SML enables us to calculate the reward-to-risk ratio for any security in relation to that of the overall market. Therefore, when the expected rate of return for any security is deflated by its beta coefficient, the reward-to-risk ratio for any individual security in the market is equal to the market reward-to-risk ratio
How do you calculate sortino ratio?
The Sortino Ratio is the actual return minus the target return, all divided by the downside risk. The downside risk is either calculated by the semi standard deviation, or the 2nd order lower partial moment. The related link "Calculate the Sortino Ratio with Excel" provideds an Excel spreadsheet to calculate the Sortino Ratio
How can one calculate the standard deviation of a portfolio?
To calculate the standard deviation of a portfolio, you need to first determine the individual standard deviations of each asset in the portfolio, as well as the correlation between the assets. Then, you can use a formula that takes into account the weights of each asset in the portfolio to calculate the overall standard deviation. This helps measure the overall risk of the portfolio.
How can I calculate portfolio standard deviation in Excel?
To calculate portfolio standard deviation in Excel, you can use the formula SQRT(SUMPRODUCT(COVARIANCEMATRIX, TRANSPOSE(WEIGHTS), WEIGHTS)), where COVARIANCEMATRIX is the range of covariance values, and WEIGHTS is the range of weights assigned to each asset in the portfolio. This formula takes into account the covariance between assets and their respective weights to determine the overall risk of the portfolio.
What is a dominant portfolio?
Dominant Portfolio is part of the efficient frontier in modern porfolio theory. If a portfolio has a higher expected return than another portfolio with the same level of risk, a lower level of expected risk than another portfolio with equal expected return or a higher expected return and lower expected risk than the the portfolio is dominant.
What is role of portfolio manager?
Deciding the Best Investment plan for an individual by considering income ,age and capability to take risk. Risk diversification Efficient portfolio Asset Allocation Beta Estimation Rebalncing Portfolio Portfolio Revision Risk and Return Analysis of a security.
What Portfolio is located on the capital market line to the left of the market portfolio?
a portfolio with a long position in risk free assest
What type of risk is avoidable through proper diversification?
portfolio risk
Sharpex index model of optimum portfolio with examples?
The Sharpe Index Model, also known as the Capital Asset Pricing Model (CAPM), is used to find the optimal portfolio by balancing risk and return. It measures the excess return of a portfolio compared to a risk-free rate per unit of risk (beta). An example would be constructing a portfolio of diversified assets that maximizes return for a given level of risk, based on the relationship between the portfolio's expected return, the risk-free rate, and the market risk premium.
What is the difference between an efficient portfolio and the optimal portfolio?
The difference is that an efficient portfolio is one that offers the lowest risk for the greatest return or vice versa. An optimal portfolio is one that is preferred by investors because it is tailored specifically to the individual's risk preferences.
How can I calculate the portfolio beta by weighting individual stock's betas?
To calculate the portfolio beta by weighting individual stock's betas, you would multiply each stock's beta by its weight in the portfolio, and then sum up these values to get the overall portfolio beta.
How can I calculate portfolio variance in Excel?
To calculate portfolio variance in Excel, you can use the formula SUMPRODUCT(COVARIANCE.S(array1,array2),array1,array2), where array1 and array2 are the returns of the individual assets in your portfolio. This formula takes into account the covariance between the assets and their individual variances to calculate the overall portfolio variance.
How can one calculate the average equity in a given financial portfolio?
To calculate the average equity in a financial portfolio, add up the equity values of all the assets in the portfolio and then divide by the total number of assets. This will give you the average equity value of the portfolio.
A primary advantage associated with holding a diversified portfolio of financial assets is the reduction of risk The relevant risk a particular stock would contribute to?
A primary advantage associated with holding a diversified portfolio of financial assets is the reduction of risk. The relevant risk a particular stock would contribute to a well-diversified portfolio is the stock.
