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The standard deviation and beta measure different aspects of a stock's returns. Standard deviation quantifies the total volatility or risk of a stock's price movements, while beta measures the stock's sensitivity to market movements. It is possible for the standard deviation to be higher than beta, especially for stocks that have high volatility relative to the market but do not correlate strongly with market movements. Conversely, stocks with a low beta may have a high standard deviation if they experience large price swings independent of market trends.
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Should you use standard deviation or variance when measuing a stocks monthly returns?
Only if your Interested in using Technical Analysis. Otherwise it may not have any effect if the Market is in Volatile movement which is known as weak form efficiency
How are variance and standard deviation used as measures of risk for both a security and a portfolio?
Risk reflects the chance that the actual return on an investment may be very different than the expected return. One way to measure risk is to calculate the variance and standard deviation of the distribution of returns.Consider the probability distribution for the returns on stocks A and B provided below.StateProbabilityReturn onStock AReturn onStock B120%5%50%230%10%30%330%15%10%320%20%-10%The expected returns on stocks A and B were calculated on the Expected Return page. The expected return on Stock A was found to be 12.5% and the expected return on Stock B was found to be 20%.Given an asset's expected return, its variance can be calculated using the following equation:whereN = the number of states,pi = the probability of state i,Ri = the return on the stock in state i, andE[R] = the expected return on the stock.The standard deviation is calculated as the positive square root of the variance.Note: E[RA] = 12.5% and E[RB] = 20%Stock AStock B
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.
What are method use in Stock Exchange for calculation Index?
The stock exchange index is a relative measure of the performance of all or a number of stocks that are traded on a stock exchange. it incorporates the return on stocks, their volumes traded and the shares outstanding. there can be a number of indices relating to a single stock exchange that incorporates the returns on a number of companies. they can also be differentiated on the basis of the return on different industries.
How much interest can you make on 800000?
The amount of interest you can earn on $800,000 depends on the interest rate, the type of investment, and the duration. For example, if you invest in a savings account with an annual interest rate of 1%, you would earn $8,000 in interest over one year. In contrast, investing in stocks or bonds could yield higher returns, but they also come with greater risk. Always consider your investment goals and risk tolerance when assessing potential earnings.
Does adding stocks decrease a portfolios standard deviation and risk?
It depends on the standard deviation and risk of the new stock.
Should you use standard deviation or variance when measuing a stocks monthly returns?
Only if your Interested in using Technical Analysis. Otherwise it may not have any effect if the Market is in Volatile movement which is known as weak form efficiency
Plot the following estimated returns for the next year on the SML and indicate which stocks are undervalued or overvalued?
To plot the estimated returns of stocks on the Security Market Line (SML), you need to determine the expected return for each stock based on its beta and the market return. Stocks that lie above the SML are considered undervalued, as they offer higher returns for their level of risk, while stocks below the SML are overvalued, providing lower returns than expected for their risk. By plotting these stocks against the market risk premium, you can visually assess their valuation status. If you provide the specific estimated returns and betas for the stocks, I can help you further analyze them.
How do ISA stocks and shares compare in terms of potential returns and risks?
ISA stocks and shares have the potential for higher returns compared to cash ISAs, but they also come with higher risks due to the fluctuating nature of the stock market. Investors may earn more money with stocks and shares ISAs, but they also face the possibility of losing money if the market performs poorly.
How do the investment options compare to each other in terms of potential returns and risks?
Investment options vary in potential returns and risks. Generally, higher potential returns come with higher risks. Stocks typically offer higher returns but also higher risks compared to bonds, which offer lower returns but lower risks. It's important to consider your risk tolerance and investment goals when choosing between different options.
How to calculate the expected return and volatility for a portfolio of stocks?
To calculate the expected return of a portfolio of stocks, multiply the expected return of each stock by its respective weight in the portfolio and sum these values. For volatility, first determine the covariance between the stock returns, then use these covariances along with the weights to compute the portfolio's variance, which is the sum of the weighted variances and covariances. Finally, take the square root of the variance to obtain the portfolio's volatility. This process involves using statistical measures such as the mean return and standard deviation of individual stock returns.
What are the differences between trading options and stocks?
Trading options involves the right to buy or sell a stock at a specific price within a set time frame, while trading stocks involves buying and selling shares of a company. Options have the potential for higher returns but also higher risks compared to stocks.
How are variance and standard deviation used as measures of risk for both a security and a portfolio?
Risk reflects the chance that the actual return on an investment may be very different than the expected return. One way to measure risk is to calculate the variance and standard deviation of the distribution of returns.Consider the probability distribution for the returns on stocks A and B provided below.StateProbabilityReturn onStock AReturn onStock B120%5%50%230%10%30%330%15%10%320%20%-10%The expected returns on stocks A and B were calculated on the Expected Return page. The expected return on Stock A was found to be 12.5% and the expected return on Stock B was found to be 20%.Given an asset's expected return, its variance can be calculated using the following equation:whereN = the number of states,pi = the probability of state i,Ri = the return on the stock in state i, andE[R] = the expected return on the stock.The standard deviation is calculated as the positive square root of the variance.Note: E[RA] = 12.5% and E[RB] = 20%Stock AStock B
Why should investors consider purchasing stocks that do not pay dividends?
Investors should consider purchasing stocks that do not pay dividends because these stocks have the potential for higher capital appreciation. Instead of receiving regular dividend payments, investors can benefit from the stock's value increasing over time, leading to potential higher returns in the long run.
Which best describes the difference between stocks and bonds?
Stocks represent ownership in a company, allowing shareholders to benefit from its profits through dividends and capital appreciation. In contrast, bonds are debt instruments where investors lend money to an entity (such as a corporation or government) in exchange for periodic interest payments and the return of the principal at maturity. While stocks can offer higher potential returns, they also come with higher risk, while bonds are generally considered safer but with lower returns.
What is the difference between a stock and a bond?
A stock represents ownership in a company, while a bond is a loan to a company or government that pays interest. Stocks offer potential for higher returns but also come with higher risk, while bonds provide more stable returns but with lower potential for growth.
What is the best investment option: 401k or stocks?
The best investment option depends on your financial goals and risk tolerance. A 401k is a retirement account offered by employers with tax advantages and employer matching, while stocks offer potential for higher returns but also higher risk. It's generally recommended to have a diversified portfolio that includes both 401k and stocks to balance risk and return.
