Portfolio Management

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7. How to calculate Return of a Portfolio (rp) and Risk of a Portfolio (σp)

rp = Weighted Average Return of Individual Asset

The risk of a Portfolio is always lower than weighted average risk of Individual Asses except where correlation coefficient is equal to one.

As per Markowitz, the risk (σp2) of a portfolio consisting of n assets is given by :

Σ2p = ∑i∑j [ xi × xj × σi × σj × rij ]

Weight SD Correlation Coefficient