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# Chap011 - Chapter 11 Diversification and Asset Allocation...

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Chapter 11 Diversification and Asset Allocation Slides 11-1 Fundamentals of Investments 11-2 “Put all your eggs in the one basket and WATCH THAT BASKET!” 11-3 Diversification and Asset Allocation 11-4 Example: Historical Returns 11-5 Expected Returns 11-6 Expected Return 11-7 Expected Risk Premium 11-8 Calculating the Variance of Expected Returns 11-9 Example: Calculating Expected Returns and Variances: Equal State Probabilities 11-10 Expected Returns and Variances, Netcap and Jmart 11-11 Portfolios. 11-12 Portfolios, Expected Returns. 11-13 Example: Calculating Portfolio Expected Returns 11-14 Variance of Portfolio Expected Returns 11-15 Example: Calculating Variance of Portfolio Expected Returns 11-16 Diversification and Risk, I. 11-17 Diversification and Risk, II. 11-18 Why Diversification Works, I. 11-19 Why Diversification Works, II. 11-20 Why Diversification Works, III. 11-21 Why Diversification Works, IV. 11-22 Why Diversification Works, V. 11-23 Calculating Portfolio Risk 11-24 Correlation and Diversification 11-25 Correlation and Diversification, I. 11-26 Correlation and Diversification, II. 11-27 Correlation and Diversification, III. 11-28 More on Correlation & the Risk-Return Trade-Off (The Next Slide is an Excel Example) 11-29 Example: Correlation and the Risk-Return Trade-Off 11-30 Risk and Return with Multiple Assets 11-31 The Markowitz Efficient Frontier 11-32 Useful Internet Sites 11-33 Chapter Review, I. 11-34 Chapter Review, II.

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A-99 Chapter 11 Chapter Organization 11.1 Expected Returns and Variances A. Expected Returns B. Calculating the Variance 11.2 Portfolios A. Portfolio Weights B. Portfolio Expected Returns C. Portfolio Variance 11.3 Diversification and Portfolio Risk A. The Effect of Diversification: Another Lesson from Market History B. The Principle of Diversification 11.4 Correlation and Diversification A. Why Diversification Works B. Calculating Portfolio Risk C. More on Correlation and the Risk-Return Trade-off 11.5 The Markowitz Efficient Frontier A. Risk and Return with Multiple Assets 11.6 Summary and Conclusions Selected Web Sites www.411stocks.com (to find expected returns) www.investopedia.com (for more on risk measures) www.teachmefinance.com (also contains more on risk measure) www.morningstar.com (measure diversification using “instant x-ray”) www.datachimp.com (review modern portfolio theory) www.efficentfrontier.com (check out the online journal) www.finportfolio.com (portfolio analysis tools)
Diversification and Asset Allocation A-100 Annotated Chapter Outline 11.1 Expected Returns and Variances A. Expected Returns Expected Return : Expected return is the weighted-average of possible future returns on a risky asset.

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Chap011 - Chapter 11 Diversification and Asset Allocation...

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