Portfolio Risk
Example
Suppose you invest $55 in Bristol-Myers and $45 in McDonald’s. The
expected dollar return on your BM is .10 x 55 = 5.50 and on
McDonald’s it is .20 x 45 = 9.90. The expected dollar return on your
portfolio is 5.50 + 9300 = 14.50. The portfolio rate of return is
14.50/100 = .145 or 14.5%. Assume a correlation coefficient of 1.Standard Deviation 352.1 18.7 %
2(.55x.45x1x17.1x20.8) 352.10[(.45) x(20.8) ]Portfolio Valriance [(.55) x(17.1) ]
2 22 2= =+ =+=