# Expected risk and return

The expected monthly return of a portfolio is given by the following formula:

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where

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and

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The expected annual return of the portfolio is calculated by

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Expected return for the instruments in the portfolio will vary based on the configuration. It can be one out of the three below:

- Historical return of the category where instrument is connected
- Houseview of the category
- Houseview for instrument

If method one is applied, the expected monthly return of an instrument is calculated by

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where *po* and *pf* are the instrument values at the beginning and the end of month, respectively.

The calculation of the expected volatility of a portfolio is done through the following two steps. First we calculate the monthly variance of the portfolio by using the following formula:

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where:

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Here,

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Second, we calculate the expected annual risk (in %) by using this formula:

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Expected risk for the instruments in the portfolio will vary based on the configuration. It can be one out of the three below:

- Historical risk measured on a monthly data
- Houseview risk of the category
- Houseview risk for the instrument

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