Portfolio Risk and ReturnThe general standard deviation (SD) of a portfolio is related to −The weighted mean average of each individual variance, andThe generally weighted covariances between all assets in the portfolio of investment.When a new asset is added to a large basket of portfolios with many assets, the new ... Read More

Portfolio standard deviation is the general standard deviation of a portfolio of investments of more than one asset. It shows the total risk of the portfolio and is important data in the calculation of the Sharpe ratio.It is a well-known principle of finance that "more the diversification, less is the ... Read More

The slope of a capital market line of a portfolio is its Sharpe Ratio. We know that the greater the returns of a portfolio, the greater the risk. The optimal and the best portfolio is often described as the one that earns the maximum return taking the least amount of ... Read More

A minimum variance portfolio is an investing method that helps you minimize risk and maximize returns. This often involves diversifying the assets used in the investments.Minimum Variance Portfolio: Definitions and ExamplesThe aim of having a minimum variance portfolio is to diminish the volatility arising out of singular investments. By volatility, ... Read More

The portfolio separation theorem is an economic theory that tells that the investment decisions or choices of a firm are not related to the investment preferences of the firm’s owners. It postulates that a firm should try to maximize profit rather than trying to diversify the decisions of the firm’s ... Read More

The process of combining numerous securities to reduce risk is known as diversification. It is necessary to consider the impact of covariance or correlation on portfolio risk more closely to understand the mechanism and power of diversification.Let’s study the issue category-wise −when security returns are perfectly positively correlated, when security ... Read More

Diversification in InvestmentIf the market conditions are normal, diversification is an efficient way to reduce risk. Holding just one type of investment can potentially pose a threat to your investment if the securities of your industry fail. In such conditions, you could lose all of your money. A well-diversified portfolio ... Read More

Unsystematic risk is related to the internal risk factors of the organization. It is also called specific risk, idiosyncratic risk, diversifiable risk, or residual risk. An unsystematic risk occurs due to any event for which the business is not prepared, and which disrupts the general and smooth functioning of the ... Read More

A Characteristic Line (CL) measures the risk and the related return of a security. The returns of a security at different times are plotted on a line that takes a form of a straight line which is the characteristics line (CL).The CL represents the performance of the security in comparison ... Read More

The risk that occurs due to the system of economy is known as systematic risk. Systematic risk is complex in nature and is beyond the control of an individual or a specific company. In general, all investments and securities are prone to such kinds of risk.Systemic risk includes unforeseen events ... Read More