# Expected risk and return

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

where

and

The expected annual return of the portfolio is calculated by

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

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:

where:

Here,

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

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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