Professional Documents
Culture Documents
Rate of return
Cash return = ending price + cash distribution
(dividend) beginning price
Rate of return = cash return / beginning price
exp ectedrateofreturn r Pi ri
i 1
Example:
E(r) = (-10% x 0.2) + (12% x 0.3)+ ( 22% x 0.5)=
12.6%
(ri r ) Pi
2
i 1
Standard deviation
0.0335
= 0.183 = 18.3%
Example:
E(r) = (1/2x12%)+(1/2x8%)=10%
portfolio w w 2w1w2 1, 2 1 2
2
1
2
1
2
2
2
2
.035
= 0.187 = 18.7%
Correlation coefficient is 0.75
Correlation coefficient
Equation of correlation coefficient
cov ariance(i, j )
i, j
i j
Covariance:
n
Example:
Cov(i,j) = (6-10)(14-10)0.1+(8-10)(12-10)0.2+(10-10)(1010)0.4+(12-10)(8-10)0.2+(14-10)(6-10)0.1 = -4.8
i, j = -4.8 / (2.2)x(2.2) = -1
Stock 2
0.1
6.0%
14.0%
0.2
8.0
12.0
0.4
10.0
10.0
0.2
12.0
8.0
0.1
14.0
6.0
10.0%
10.0%
Standard deviation
2.2%
2.2%
Yahoo finance
Microsoft money
central
2.91
2.58
1.81
1.37
1.27
1.47
Utilities
American Electric Power Co.
(AEP)
0.74
0.73
0.40
0.56
0.82
0.91
Example:
port .
= (0.50x1.20)+(0.25x0.70)+(0.25x0.25)=
0.8375
Beta