LM02 Portfolio Risk and Return Part I (2024)

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LM01 Alternative Investment Features, Methods, and Structures

LM01 Categories, Characteristics, and Compensation Structures of Alternative Investments

LM01 Corporate Structures and Ownership

LM01 Derivative Instrument and Derivative Market Features

LM01 Ethics and Trust in the Investment Profession

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LM01 Fixed-Income Securities: Defining Elements

LM01 Introduction to Financial Statement Analysis

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LM01 Market Organization and Structure

LM01 Organizational Forms, Corporate Issuer Features, and Ownership

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LM01 Portfolio Management: An Overview

LM01 Rates and Returns

LM01 The Firm & Market Structures

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LM02 Alternative Investment Performance and Returns

LM02 Analyzing Income Statements

LM02 Code of Ethics and Standards of Professional Conduct

LM02 Code of Ethics and Standards of Professional Conduct Profession

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LM02 Fixed-Income Cash Flows and Types

LM02 Forward Commitment and Contingent Claim Features and Instruments

LM02 Introduction to Corporate Governance and Other ESG Considerations

LM02 Investors and Other Stakeholders

LM02 Organizing, Visualizing, and Describing Data

LM02 Performance Calculation and Appraisal of Alternative Investments

LM02 Portfolio Risk & Return: Part I

LM02 Portfolio Risk and Return Part I

LM02 Security Market Indexes

LM02 The Firm and Market Structures

LM02 Time Value of Money in Finance

LM02 Understanding Business Cycles

LM03 Aggregate Output, Prices and Economic Growth

LM03 Analyzing Balance Sheets

LM03 Business Models & Risks

LM03 Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

LM03 Derivative Benefits, Risks, and Issuer and Investor Uses

LM03 Fiscal Policy

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LM03 Guidance for Standards I-VII

LM03 Guidance for Standards I–VII

LM03 Introduction to Fixed Income Valuation

LM03 Investments in Private Capital: Equity and Debt

LM03 Market Efficiency

LM03 Portfolio Risk & Return: Part II

LM03 Portfolio Risk and Return Part II

LM03 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds

LM03 Probability Concepts

LM03 Statistical Measures of Asset Returns

LM03 Understanding Income Statements

LM04 An Introduction to Asset-Backed Securities

LM04 Analyzing Statements of Cash Flows I

LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives

LM04 Basics of Portfolio Planning & Construction

LM04 Basics of Portfolio Planning and Construction

LM04 Capital Investments

LM04 Common Probability Distributions

LM04 Fixed-Income Markets for Corporate Issuers

LM04 Introduction to the Global Investment Performance Standards (GIPS)

LM04 Monetary Policy

LM04 Overview of Equity Securities

LM04 Probability Trees and Conditional Expectations

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LM04 Understanding Balance Sheets

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LM05 Analyzing Statements of Cash Flows II

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LM05 Pricing and Valuation of Forward Contracts.

LM05 Sampling and Estimation

LM05 The Behavioral Biases of Individuals

LM05 Understanding Cash Flow Statements

LM05 Understanding Fixed-Income Risk and Return

LM05 Working Capital & Liquidity

LM06 Analysis of Inventories

LM06 Capital Structure

LM06 Cost of Capital-Foundational Topics

LM06 Equity Valuation: Concepts and Basic Tools

LM06 Financial Analysis Techniques

LM06 Fixed-Income Bond Valuation: Prices and Yields

LM06 Fundamentals of Credit Analysis

LM06 Hedge Funds

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LM06 International Trade

LM06 Introduction to Geopolitics

LM06 Introduction to Risk Management

LM06 Pricing and Valuation of Futures Contracts

LM06 Simulation Methods

LM07 Analysis of Long-Term Assets

LM07 Business Models

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LM07 Capital Structure

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LM07 Introduction to Linear Regression

LM07 Inventories

LM07 Pricing and Valuation of Interest Rate and Other Swaps

LM07 Pricing and Valuation of Interest Rates and Other Swaps

LM07 Technical Analysis

LM07 Yield and Yield Spread Measures for Fixed-Rate Bonds.

LM08 Currency Exchange Rates

LM08 Equity Valuation: Concepts and Basic Tools

LM08 Exchange Rate Calculations

LM08 Fintech in Investment Management

LM08 Hypothesis Testing

LM08 Long Lived Assets

LM08 Measures of Leverage

LM08 Pricing and Valuation of Options

LM08 Topics in Long-Term Liabilities and Equity

LM08 Yield and Yield Spread Measures for Floating-Rate Instruments

LM09 Analysis of Income Taxes

LM09 Income Taxes

LM09 Option Replication Using Put-Call Parity

LM09 Option Replication Using Put–Call Parity

LM09 Parametric and Non-Parametric Tests of Independence

LM09 The Term Structure of Interest Rates: Spot, Par, and Forward Curves

LM10 Financial Reporting Quality

LM10 Interest Rate Risk and Return

LM10 Non-current (Long-Term) Liabilities

LM10 Simple Linear Regression

LM10 Valuing a Derivative Using a One-Period Binomial Model

LM11 Financial Analysis Techniques

LM11 Financial Reporting Quality

LM11 Introduction to Big Data Techniques

LM11 Yield-Based Bond Duration Measures and Properties

LM12 Applications of Financial Statement Analysis

LM12 Introduction to Financial Statement Modeling

LM12 Yield-Based Bond Convexity and Portfolio Properties

LM13 Curve-Based and Empirical Fixed-Income Risk Measures

LM14 Credit Risk

LM15 Credit Analysis for Government Issuers

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LM17 Fixed-Income Securitization

LM18 Asset-Backed Security (ABS) Instrument and Market Features

LM19 Mortgage-Backed Security (MBS) Instrument and Market Features

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LM02 Portfolio Risk and Return Part I (2024)

FAQs

How do you calculate the risk and return of a portfolio? ›

In most basic terms, the portfolio risk, denoted as , can be calculated as: σ P = w A 2 ⋅ σ A 2 + w B 2 ⋅ σ B 2 + 2 ⋅ w A ⋅ w B ⋅ σ A ⋅ σ B ⋅ ρ A B In this formula, - stands for the portfolio risk, - and are the weights of investment in asset A and asset B, - and are the standard deviations of returns of asset A and ...

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What is the portfolio theory of risk and return? ›

Portfolio theory demonstrates that it is possible to reduce risk without having a consequential reduction in return, ie the portfolio's expected return is equal to the weighted average of the expected returns on the individual investments, while the portfolio risk is normally less than the weighted average of the risk ...

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How to manage return and risk of a security portfolio? ›

Combining assets with low correlations reduces portfolio risk. The two-fund separation theorem allows us to separate decision making into two steps. In the first step, the optimal risky portfolio and the capital allocation line are identified, which are the same for all investors.

What is the formula for portfolio at risk? ›

The standard international measure of portfolio quality in banking is Portfolio at Risk (PAR) beyond a specified number of days: PAR (x days) = Outstanding principal balance of all loans past due more than x days Outstanding principal balance of all loans The number of days (x) used for this measurement varies.

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What is the formula for return on a portfolio? ›

The formula for expected portfolio return is as follows: Expected Return of the Portfolio E(Rp) = Σ (Weight of each asset × Expected Return of each asset)

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How do you determine risk and return? ›

Risk is measured by the standard deviation of prices. Return is measured by the change in price compared to the initial investment.

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What is the difference between portfolio risk and portfolio return? ›

Risk in an investment portfolio means there's a chance that the actual return on your investments will be less than what you expected. It can also mean losing some or all of your original investment, which could impact your financial goals.

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How to calculate expected return? ›

The expected return is calculated by multiplying the probability of each possible return scenario by its corresponding value and then adding up the products. The expected return metric—often denoted as “E(R)”—considers the potential return on an individual security or portfolio and the likelihood of each outcome.

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What is the formula for total risk? ›

Total Risk = Market Risk + Diversifiable Risk. The total risk of a security portfolio can be divided into systematic and unsystematic risk; systematic risk is the risk that cannot be avoided by any means; it is the inherent risk of the portfolio, and also known as market risk.

What are the two types of risk? ›

Types of Risk

Broadly speaking, there are two main categories of risk: systematic and unsystematic. Systematic risk is the market uncertainty of an investment, meaning that it represents external factors that impact all (or many) companies in an industry or group.

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How do you balance risk and return? ›

One of the most important ways to balance risk and return is through asset allocation. This involves spreading your investments across different asset classes, such as stocks, bonds, and real estate. By diversifying your portfolio, you reduce the risk of losing money if one asset class performs poorly.

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What is the general pattern of risk and return? ›

Risk-return tradeoff states that the potential return rises with an increase in risk. Using this principle, individuals associate low levels of uncertainty with low potential returns, and high levels of uncertainty or risk with high potential returns.

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How to calculate risk and return of portfolio? ›

To do this we must first calculate the portfolio beta, which is the weighted average of the individual betas. Then we can calculate the required return of the portfolio using the CAPM formula. The expected return of the portfolio A + B is 20%. The return on the market is 15% and the risk-free rate is 6%.

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What is a good portfolio risk percentage? ›

Most sources cite a low-risk portfolio as being made up of 15-40% equities. Medium risk ranges from 40-60%. High risk is generally from 70% upwards. In all cases, the remainder of the portfolio is made up of lower-risk asset classes such as bonds, money market funds, property funds and cash.

How do I calculate my portfolio? ›

Your Portfolio Value is calculated by summing up the current values of all your stocks and your cashflow (deposits minus withdrawals). Any investment income spent on stock purchases is considered in your stock's value, whereas unspent is considered in the cashflow.

How do you calculate mean return on a portfolio? ›

Mean returns are calculated by adding the product of all possible return probabilities and returns and placing them against the weighted average of the sum.

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How do you calculate total return on investment portfolio? ›

[ Annual Return = (ending value / beginning value)^(1 / number of years) – 1 ] When we know the annual return but not the total return, we can calculate total return by adding one to the annual return rate and raising it to the power of the number of years of the investment period.

What is the formula for risk? ›

Risk is the combination of the probability of an event and its consequence. In general, this can be explained as: Risk = Likelihood × Impact. In particular, IT risk is the business risk associated with the use, ownership, operation, involvement, influence and adoption of IT within an enterprise.

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What is an example of a portfolio at risk? ›

An example of portfolio risk is inflation. If an economy experiences high inflation rates, the prices of securities in a portfolio may change as a result.

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