Concept explainers
Standard deviation of portfolio:
Volatility refers to a formal measure of risks involved in stocks. The higher the volatility of a stock, the greater is its ups and down swings. The volatility of a portfolio of stocks is a measure of how the total value of the stocks in a portfolio appreciates or declines. It can be obtained by the measuring the standard deviation of the portfolio.
Expected Return of a Portfolio
The Expected Return of a Portfolio refers to the weighted average of the expected returns on each individual investment in a particular portfolio. The expected return of a portfolio is hence related to the expected return of the stocks in a portfolio.
The Expected Return of a Portfolio can be calculated using the formula given below.
Where,
- is the expected return of portfolio.
- is the weight of the investment or stock.
- is the expected return of investment or stock.
To ascertain: The stock to be added to the portfolio and expected return and standard deviation of the portfolio.
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