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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