What is the residual standard deviation of the portfolio b. Assume the residual returns (the e terms in Equations 26.1 and 26.2) on each of these stocks are independent of each other. standard deviation A standard deviation tells. The portfolio standard deviation or variance, which is simply the square of the standard deviation, comprises two key parts: the variance of the underlying assets plus the covariance of each underlying asset pair. Suppose you hold an equally weighted portfolio of 100 stocks with the same alpha, beta, and residual standard deviation as Waterworks. It is the asset weighted standard deviation of individual portfolio returns within a comparable client. Due to the correlation between securities, the computation of portfolio risk must incorporate this correlation relationship. The level of risk in a portfolio is often measured using standard deviation, which is calculated as the square root of the variance. And this portfolio standard deviation, when we do a simple, equal weight split, 25 in large, in small. The standard deviation of the returns of the portfolio is a measure of the. Lets calculate the expected portfolio return. The standard deviation of a portfolio of assets, or portfolio risk, is not simply the sum of the risk of the underlying securities. The expected return of the portfolio is simply the weighted average of the.
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