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A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the following case: Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Artemis Inc. Babish & Co.. Cornell Industries Danforth Motors What is the expected return on Andre's stock portfolio? 7.28% 14.55% 9.70% Percentage of Portfolio Expected Return 20% 30% 35% 15% 13.10% 6.00% 14.00% 11.00% 3.00% Standard Deviation 25.00% 29.00% 32.00% 34.00% Suppose each stock in Andre's portfolio has a correlation coefficient of 0.4 (p 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 30%, the portfolio's standard deviation () most likely is 30%. possibility that an investment portfolio will not generate the investor's expected rate of return. yzing portfolla risk and return involves the understanding of expected returns from a portfolio. sider the following case: re is an amateur investor who holds a small portfolio consisting of only four stocks. The stock ho 0: Stock Artemis Inc. Babish & Co. Comell Industries Danforth Motors that is the expected return on Andre's stock portfolio? 20 7.28% 14.55% -9.70% r 13.10% uppose each stock in Andre's portfol the individual securities (as measur andard deviation (y) most likely is, # 3 E Percentage of Portfolio Expected Return 20% 30% 35% 15% SO 73 D $ 4 C more than R 838 FA equal to less than TI F % *5 30% PN ation coefficient of 0.4 (p 0.4) with each of the ot Jandard deviations) included in the partially diversife T 6.00% 14.00% 11.00% 3.00% V MacBook Pro > Standard Deviation 6 G Y B 25.00% 29.00% 32.00% 34,00% & 7 80 43 H U 8 M

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