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  • Portfolio Risk Two Ways

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    djmphd
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    This document contains historical return data for three assets (Wi, Rb, Rp) along with their expected returns, variances, and covariances. It compares two methods for calculating the expected portfolio return and variance: using only the portfolio return data itself versus using modern portfolio theory which incorporates the individual asset returns and their correlations. Both methods produce the same results for the expected portfolio return and variance.

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    This document contains historical return data for three assets (Wi, Rb, Rp) along with their expected returns, variances, and covariances. It compares two methods for calculating the expected portfolio return and variance: using only the portfolio return data itself versus using modern portfolio theory which incorporates the individual asset returns and their correlations. Both methods produce the same results for the expected portfolio return and variance.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLSX or read online from Scribd
    Flag for inappropriate content
    Download as xlsx
    524 views1 page

    Portfolio Risk Two Ways

    Uploaded by

    djmphd
    This document contains historical return data for three assets (Wi, Rb, Rp) along with their expected returns, variances, and covariances. It compares two methods for calculating the expected portfolio return and variance: using only the portfolio return data itself versus using modern portfolio theory which incorporates the individual asset returns and their correlations. Both methods produce the same results for the expected portfolio return and variance.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLSX or read online from Scribd
    Flag for inappropriate content
    Download as xlsx
    of 1

    Historical data

    Wi ->
    t
    Ra
    1
    2
    3

    40%

    60%
    Rb

    Rp

    10%
    -5%
    7%

    3%
    4%
    6%

    4.2%
    3.3%
    0.0011

    Algebraic
    4.2%
    3.3%
    0.0011

    5.8%
    0.4%
    6.4%

    Method 1: Use Rpt

    Built-in
    E[Rp]
    p
    p^2
    Method 2: Use MPT

    Ra
    E[Ri]
    i
    i^2
    ij

    p
    p^2

    Built-in
    Rb
    Ra
    4.0%
    4.3%
    7.9%
    1.5%
    0.0063
    0.0002
    -1.0842E-19
    -8.94235E-17
    3.3%
    0.0011

    Algebraic
    Rb
    4.0%
    4.3%
    7.9%
    1.5%
    0.0063
    0.0002
    -1.0842E-19
    -8.94235E-17
    3.3%
    0.0011

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