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Portfolio Risk and Return Analysis

The expected return for an equally weighted portfolio of assets A, B, and C is calculated to be 18.33%. The portfolio risk, or standard deviation, is determined to be 16.96%. This analysis incorporates the expected returns, standard deviations, and correlations between the assets.

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8 views1 page

Portfolio Risk and Return Analysis

The expected return for an equally weighted portfolio of assets A, B, and C is calculated to be 18.33%. The portfolio risk, or standard deviation, is determined to be 16.96%. This analysis incorporates the expected returns, standard deviations, and correlations between the assets.

Uploaded by

irfanayesha864
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Q5: Determine the risk and return for an equally weighted portfolio of assets A, B and C with

the following data:


A B C
Expected Return (R) 16% 18% 21%
Standard Deviation 19% 21% 26%
(σ)

Correlation
A and B (r12) = 0.5
B and C (r23) = 0.2
A and C (r13) = 0.5

Expected Return Calculation


ER p=W 1 R1 +W 2 R2 +W 3 R3
1 1 1
ER p= (16 ) + ( 18 ) + ( 21)
3 3 3
16 18 21
ER p= + +
3 3 3
16+18+ 21
ER p=
3
55
ER p=
3
ER p=18.33 %
Portfolio Risk
√
σ p= x12 σ 21 + x 22 σ 22 + x 23 σ 23+ 2 ( x 1 ) ( x 2 )( r 12) ( σ 1 )( σ 2 ) +2 ( x 2 )( x3 ) ( r 23) ( σ 2 )( σ 3 ) +2 ( x 1 )( x 3 ) ( r 13 ) ( σ 1) ( σ 3 )

σ p=
√( ) 1 2
3
(19)2 +
1 2
3 ()
(21)2 +
1 2
3
(26)2+2
1
3() ( )( 13 ) ( 0.5) ( 19) (21 )+2 ( 13 )( 13 ) ( 0.2) (21 )( 26 )+ 2( 13 )( 13 ) ( 0.5) ( 19) ( 26)
σ p= (√ 19 )( 361) +( 19 ) ( 441) +( 19 ) ( 676) + 3999 + 218.4
9
+
494
9

σ p=
9√
361 441 676 399 218.4 494
+
9
+
9
+
9
+
9
+
9
σ p=√ 40.11+ 49+75.11+ 44.33+24.26+ 54.88
σ p=√ 287.69
σ p=16.96 %

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