Mean-variance criterion

The selection of portfolios based on the means and variances of their returns. The choice of the higher
expected return portfolio for a given level of variance or the lower variance portfolio for a given expected
return.
Markowitz used mathematical programming and
The nature of investment risk

Risk is discussed here in terms of a portfolio of assets.

As discussed earlier any investment risk is the variability of return on a stock,assets or a portfolio.

It is measure dby the standard deviation of the return over the mean for a number of observation.

I Types of Risks II

Systematic Unsystematic Risk

(Market) (Company Risk)

Examples :-Interest Rate Risk, Examples:-Labour Troubles,

Market Risk, Inflation Risk, Liquidity Problems, Raw Material
Demand and Govt. Policy, Risk, Financial Risks,
International Factors Management problems.

Portfolio Risk:- When 2 or more securities or assets are combined in a portfolio, their covariance or
interactive risk is to be considered. Thus, if the returns on two assets move together, their covariance is
positive and the risk is more on such portfolio. If on the other hand, the returns move independently or
in opposite directions, the covariance is negative and the risk in total will be lower.