be saved. Assume that every asset has the same expected return and variance. Furthermore, all assets have the same covariance with each other. As the number of assets in a portifolio grows, which becomes more important: variance or covariance? Clarify your answer using words, diagrams, formulae or a practical example.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Assume that every asset has the same expected return and variance. Furthermore, all assets have the same covariance with each other. As the number of assets in a portifolio grows, which becomes more important: variance or covariance? Clarify your answer using words, diagrams, formulae or a practical example.
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