week3 - Portfolio return and risk: graphics 2-stock...

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Week 3 Portfolio analysis
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Portfolios Portfolio – combination of investments defined by portfolio weights Question: given the expected returns and risks of each individual stock, what is the expected return and risk of a portfolio made up of these stocks? Answer will tell us how to build portfolios that have a specified level of expected return and risk
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Portfolio return and risk: formulas Return on portfolio Expected return of portfolio Risk (volatility or standard deviation) of portfolio Note importance of covariance (or correlation) terms for portfolio risk
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Unformatted text preview: Portfolio return and risk: graphics 2-stock example: see portfolio_example spreadsheet Expected return-risk possibilities depends on portfolio weights (whether shorting is allowed or not) and on correlations For long-only portfolio, combining stocks that have low correlation reduces risk for given expected return Example: stocks, bonds, REITs Portfolio risk and return possibilities Investment opportunity set Minimum variance frontier Efficient frontier Mean-variance optimization...
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week3 - Portfolio return and risk: graphics 2-stock...

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