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41 Portfolio Risk and Return: Part I (major return measures (other return…
41 Portfolio Risk and Return: Part I
major return measures
holding period return (HPR)
average returns
arithmetic mean return
geometric mean return
money-weighted rate of return (IRR)
other return measures
gross return
pretax nominal return
after-tax nominal return
real return
leverage return
net return
mean, variance, and covariance (or correlation) of asset returns
Individual Security
Variance (Standard Deviation) of Returns
Population variance
Sample variance
Covariance and Correlation of Returns for Two Securities
Portfolio
Variance of returns
The risk of a portfolio of a risky assets depends on the
asset weights
and the
standard deviations
of the assets returns, and crucially on the
correlation (covairance)
of the assets returns.
minimum-variance and efficient frontiers of risky assets and global minimum-variance portfolio
Minimum variance frontier
Minimum-variance portfolio
lowest standard deviation with a given expected return
Minimum-variance frontier
the entire collection of minnimum-variance portfolios
Global minimum-variance portfolio
the left-most point on the minimum-variance frontier
Efficient frontier
Markowitz efficient frontier
Efficient portfolio
well-diversified or fully-diversified
portfolios have the greatest expected return with a given level or risk
risk aversion and its implications for portfolio selection
Risk seeking
Risk neutral
Risk averse
Utility Theory
Assumption
Utility function
degree of risk aversion
Indifference curve
a more risk-averse investor will have steeper indifference curves, reflecting a higher
risk aversion coefficient
The optimal portfolio
Capital allocation line
Indifference curves
Markowitz efficient frontier