Portfolio analysis Flashcards
1
Q
How can we quantify the risk and likely return of any investment?
A
- Use probabilities to attach numbers to the likelihood of each world issue occurring
- Look at historical prices
2
Q
How do we (formula) calculate expected return?
A
p1r1 +p2r2 where r is possible return and p is the possibility of this return occurring
3
Q
What is a good way to measure risk?
A
Standard deviation
4
Q
Whats the formula for Standard deviation using Variance?
A
STD = square route VAR
5
Q
How do you calculate the expected return on a two asset portfolio?
A
WaRa + WbRb where W is percentage of portfolio the asset consumes, and R is the return on the security
6
Q
How is covariance calculated?
A
Sum of (Ra - Ra(bar)) (Rb-Rb(bar)) pi
7
Q
What’s the formula for correlation of securities?
A
cov (Ra, Rb) / σaσb
where σ is standard deviation
