calculate the expected return and standard deviation for the following portfolios
What is the expected return of the overall portfolio?
The expected return of the overall portfolio would be 7.85%. We arrive at this result by using the formula above: An investor uses an expected return to forecast, and standard deviation to discover what is performing well and what is not.
How do investors calculate the expected value of a portfolio?
Investors and portfolio managers can calculate the anticipated values of their portfolios by using the expected return and standard deviation. Expected return uses historical returns and calculates the mean of an anticipated return based on the weighting of assets in a portfolio.
What is the difference between expected return and standard deviation?
The expected return is the anticipated amount of returns that a portfolio may generate, whereas the standard deviation of a portfolio measures the amount that the returns deviate from its mean. Investors and portfolio managers can calculate the anticipated values of their portfolios by using the expected return and standard deviation.
How is portfolio standard deviation calculated?
Portfolio Standard Deviation is calculated based on the standard deviation of returns of each asset in the portfolio, the proportion of each asset in the overall portfolio, i.e., their respective weights in the total portfolio, and also the correlation between each pair of assets in the portfolio.
How to Calculate Expected Return
To calculate the expected return of a portfolio, the investor needs to know the expected return of each of the securities in their portfolio as well as the overall weight of each security in the portfolio. That means the investor needs to add up the weighted averages of each security's anticipated rates of return (RoR). An investor bases the estima
Formula For Expected Return
Let's say your portfoliocontains three securities. The equation for its expected return is as follows: where: wn refers to the portfolio weight of each asset and En its expected return. investopedia.com
Limitations of Expected Return
Since the market is volatileand unpredictable, calculating the expected return of a security is more guesswork than definite. So it could cause inaccuracy in the resultant expected return of the overall portfolio. Expected returns do not paint a complete picture, so making investment decisions based on them alone can be dangerous. For instance, exp
Calculate Risk And Return Of A Two-Asset Portfolio In Excel (Expected Return And Standard Deviation)
Calculate Risk And Return Of A 3-Asset Portfolio In Excel (Expected Return And Standard Deviation)
Expected Return and Standard Deviation
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