{"id":25002,"date":"2022-06-01T07:36:52","date_gmt":"2022-06-01T07:36:52","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=25002"},"modified":"2023-01-24T00:54:09","modified_gmt":"2023-01-23T19:24:09","slug":"risk-return-relationship","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/risk-return-relationship\/","title":{"rendered":"Learn About Measuring Risk &#038; Return of Mutual Fund"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"25002\" class=\"elementor elementor-25002\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-825a2f1 elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"825a2f1\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div 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data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\").addClass(\"current\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/stock-market-investments\/\">Stock Market & Investments<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/risk-in-stock-market\/\">Risk In Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/measurement-of-risk\/\">Measurement of Risk<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/risk-expected-return\/\">Risk & Expected Return<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/risk-return-relationship\/\">Risk & Return Relationship<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/market-analysis-its-impact-on-prices\/\">Market Analysis & Its Impact On Prices<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/industry-analysis\/\">Industry Analysis<\/a><\/li><li><i class=\"fa 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      <i class=\"far fa-edit\"><\/i>                                                            \n                                                            <span class=\"eael-tab-title title-after-icon\" >Study<\/span>                            \n                                                    <\/li>\n                                            <li id=\"slides\" class=\" eael-tab-item-trigger eael-tab-nav-item\" aria-selected=\"false\" data-tab=\"2\" role=\"tab\" tabindex=\"-1\" aria-controls=\"slides-tab\" aria-expanded=\"false\">\n                            \n                                                                <i class=\"fas fa-book-open\"><\/i>                                                            \n                                                            <span class=\"eael-tab-title title-after-icon\" >Slides<\/span>                            \n                                                    <\/li>\n                                            <li id=\"videos\" class=\" eael-tab-item-trigger eael-tab-nav-item\" aria-selected=\"false\" data-tab=\"3\" role=\"tab\" tabindex=\"-1\" aria-controls=\"videos-tab\" aria-expanded=\"false\">\n                            \n                                                                <i class=\"far fa-eye\"><\/i>                                                            \n                                                            <span class=\"eael-tab-title title-after-icon\" >Videos<\/span>                            \n                                                    <\/li>\n                    \n                                  <\/ul>\n            <\/div>\n            \n            <div class=\"eael-tabs-content\">\n\t\t        \n                    <div id=\"study-tab\" class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Risk-Return-Relationship' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h3 style=\"text-align: left\"><strong>5.1 Risk Return Relationship<\/strong><\/h3>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77228 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship.png\" alt=\"Risk and Return Relationship\" width=\"2071\" height=\"1624\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship.png 2071w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-300x235.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-1024x803.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-768x602.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-1536x1204.png 1536w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-2048x1606.png 2048w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-50x39.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-100x78.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Relationship-150x118.png 150w\" sizes=\"(max-width: 2071px) 100vw, 2071px\" \/><\/p>\r\n<p>One of the most important principles in finance is that <strong><b>risk and return are linked<\/b><\/strong>. Investors expect higher returns only when they take on higher risk. If markets are efficient, every asset should offer a return that matches the level of risk it carries.<\/p>\r\n<p><strong><b>Understanding the Tradeoff<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Risk<\/b><\/strong>\u2192 The chance that actual returns will differ from expected returns. Statistically, this is measured by <strong><b>standard deviation<\/b><\/strong>.<\/li>\r\n<li><b><\/b><strong><b>Return<\/b><\/strong>\u2192 The reward investors receive for bearing risk.<\/li>\r\n<li><b><\/b><strong><b>Relationship<\/b><\/strong>\u2192 Higher uncertainty means higher potential returns, but also higher chances of losses.<\/li>\r\n<\/ul>\r\n<p>This balance is often described as the \u201ccomfort zone test.\u201d Some investors are comfortable with volatile assets like cryptocurrencies, while others prefer the stability of government bonds.<\/p>\r\n<p><strong><b>Examples of Risk\u2013Return Levels<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Asset Type<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Risk Level<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Typical Return<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Example<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Government Securities<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Very Low<\/p>\r\n<\/td>\r\n<td>\r\n<p>6\u20137%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Indian Treasury Bills<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Corporate Bonds<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Moderate<\/p>\r\n<\/td>\r\n<td>\r\n<p>8\u201310%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Tata Motors Debentures<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Equity Index Funds<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>High<\/p>\r\n<\/td>\r\n<td>\r\n<p>12\u201315% (long-term average)<\/p>\r\n<\/td>\r\n<td>\r\n<p>Nifty 50 Index Fund<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Cryptocurrency<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Very High<\/p>\r\n<\/td>\r\n<td>\r\n<p>Highly volatile (\u201340% to +200%)<\/p>\r\n<\/td>\r\n<td>\r\n<p>Bitcoin, Ethereum<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Illustration<\/b><\/strong><\/p>\r\n<p>Suppose the <strong><b>risk-free rate<\/b><\/strong>\u00a0(government bond yield) is 7%.<\/p>\r\n<ul>\r\n<li>An index fund averages 13% over time. The <strong><b>risk premium<\/b><\/strong>here is 6% (13% \u2013 7%).<\/li>\r\n<li>But this 13% is not guaranteed. One year it may be \u201310%, another year +25%.<\/li>\r\n<\/ul>\r\n<p>This shows that higher returns are possible, but they come with greater volatility.<\/p>\r\n<p><strong><b>Market Line Concept<\/b><\/strong><\/p>\r\n<p>Finance theory uses the <strong><b>Security Market Line (SML)<\/b><\/strong>\u00a0to show the relationship between risk and return.<\/p>\r\n<ul>\r\n<li>The slope of the line represents the <strong><b>return per unit of risk<\/b><\/strong>.<\/li>\r\n<li>A steep slope indicates investors are highly risk-averse (they demand more return for taking risk).<\/li>\r\n<li>A flatter slope suggests investors are more willing to accept risk for lower compensation.<\/li>\r\n<\/ul><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Portfolio and Security Returns' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h3 style=\"text-align: left\"><strong>5.2 Portfolio and Security Returns<\/strong><\/h3>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77229 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns.png\" alt=\"Portfolio and Security Returns\" width=\"1915\" height=\"1838\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns.png 1915w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-300x288.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-1024x983.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-768x737.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-1536x1474.png 1536w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-50x48.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-100x96.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Portfolio-and-Security-Returns-150x144.png 150w\" sizes=\"(max-width: 1915px) 100vw, 1915px\" \/><\/p>\r\n<p>A <strong><b>portfolio<\/b><\/strong>\u00a0is simply a collection of securities. Investors rarely put all their money into a single stock or bond; instead, they spread investments across multiple assets. This diversification helps balance risk and return. The expected return of a portfolio depends on:<\/p>\r\n<ol>\r\n<li>The expected return of each security.<\/li>\r\n<li>The proportion of funds invested in each security.<\/li>\r\n<\/ol>\r\n<p>Thus, portfolio return is essentially a weighted average\u00a0of the returns of its individual securities.<\/p>\r\n<p><strong><b>Example Portfolio \u2013 Latest Context<\/b><\/strong><\/p>\r\n<p>Suppose an investor holds shares in five companies:<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Security<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>No. of Shares<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Current Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Current Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Expected Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Expected Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Infosys<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>50<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b975,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,650<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b982,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reliance<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>40<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b92,800<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,12,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b93,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,20,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>60<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,600<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b996,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,750<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,05,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Tata Motors<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>100<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b9900<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b990,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,050<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,05,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>ITC<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>80<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b9450<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b936,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b9500<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b940,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Total Current Value = \u20b94,09,000<\/b><\/strong>\u00a0<strong><b>Total Expected Value = \u20b94,52,500<\/b><\/strong><\/p>\r\n<p><strong><b>Value Relative Contribution<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Security<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Current Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Portfolio Weight<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Current Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Expected Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Value Relative<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Contribution<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Infosys<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b975,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.183<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,650<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.10<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.201<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reliance<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,12,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.274<\/p>\r\n<\/td>\r\n<td>\r\n<p>2,800<\/p>\r\n<\/td>\r\n<td>\r\n<p>3,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.07<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.293<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b996,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.235<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,600<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,750<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.09<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.256<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Tata Motors<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b990,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.220<\/p>\r\n<\/td>\r\n<td>\r\n<p>900<\/p>\r\n<\/td>\r\n<td>\r\n<p>1,050<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.17<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.257<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>ITC<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b936,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.088<\/p>\r\n<\/td>\r\n<td>\r\n<p>450<\/p>\r\n<\/td>\r\n<td>\r\n<p>500<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.11<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.098<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Portfolio Value Relative = 1.105 (\u2248 10.5% growth)<\/b><\/strong><\/p>\r\n<p><strong><b>Holding-Period Returns<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Security<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Portfolio Weight<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Expected Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Contribution (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Infosys<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.183<\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.83<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reliance<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.274<\/p>\r\n<\/td>\r\n<td>\r\n<p>7<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.92<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.235<\/p>\r\n<\/td>\r\n<td>\r\n<p>9<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.12<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Tata Motors<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.220<\/p>\r\n<\/td>\r\n<td>\r\n<p>17<\/p>\r\n<\/td>\r\n<td>\r\n<p>3.74<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>ITC<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.088<\/p>\r\n<\/td>\r\n<td>\r\n<p>11<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.97<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Portfolio Expected Return = 10.58%<\/b><\/strong><\/p>\r\n<p><strong><b>Insights<\/b><\/strong><\/p>\r\n<ul>\r\n<li>The portfolio\u2019s return is a weighted average of individual returns.<\/li>\r\n<li>Securities with higher portfolio weights (like Reliance and HDFC Bank) contribute more to overall return.<\/li>\r\n<li>If an investor wanted the highest possible return, they might invest only in Tata Motors (17%). But this would expose them to concentrated risk.<\/li>\r\n<\/ul>\r\n<p>Diversification spreads risk across multiple securities, reducing volatility while still delivering a reasonable expected return.<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Risk and Return Calculation' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h3 style=\"text-align: left\"><strong>5.3 Risk and Return Calculation<span style=\"color: #f1566d\"><br \/><\/span><\/strong><\/h3>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77230 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations.png\" alt=\"Risk and Return Calculations\" width=\"1804\" height=\"2538\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations.png 1804w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-213x300.png 213w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-728x1024.png 728w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-768x1080.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-1092x1536.png 1092w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-1456x2048.png 1456w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-36x50.png 36w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-71x100.png 71w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Risk-and-Return-Calculations-150x211.png 150w\" sizes=\"(max-width: 1804px) 100vw, 1804px\" \/><\/p>\r\n<p>To understand how risk and return are calculated for a single security, let\u2019s take the case of Infosys Ltd.\u00a0over a 5-year period. We will consider both capital gains\u00a0(price changes) and dividends\u00a0(income) to compute the annual return.<\/p>\r\n<p><strong><b>Infosys Share Data<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Avg Market Price (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Dividend per Share (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>25<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,100<\/p>\r\n<\/td>\r\n<td>\r\n<p>30<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>950<\/p>\r\n<\/td>\r\n<td>\r\n<p>20<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,200<\/p>\r\n<\/td>\r\n<td>\r\n<p>35<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2022<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,350<\/p>\r\n<\/td>\r\n<td>\r\n<p>40<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Step 1: Annual Returns<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Avg Price (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Capital Gain (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Dividend (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Dividend Yield (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Rate of Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u2013<\/p>\r\n<\/td>\r\n<td>\r\n<p>25<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.50<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u2013<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,100<\/p>\r\n<\/td>\r\n<td>\r\n<p>10.00<\/p>\r\n<\/td>\r\n<td>\r\n<p>30<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.73<\/p>\r\n<\/td>\r\n<td>\r\n<p>12.73<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>950<\/p>\r\n<\/td>\r\n<td>\r\n<p>-13.64<\/p>\r\n<\/td>\r\n<td>\r\n<p>20<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.11<\/p>\r\n<\/td>\r\n<td>\r\n<p>-11.53<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,200<\/p>\r\n<\/td>\r\n<td>\r\n<p>26.32<\/p>\r\n<\/td>\r\n<td>\r\n<p>35<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.92<\/p>\r\n<\/td>\r\n<td>\r\n<p>29.24<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2022<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1,350<\/p>\r\n<\/td>\r\n<td>\r\n<p>12.50<\/p>\r\n<\/td>\r\n<td>\r\n<p>40<\/p>\r\n<\/td>\r\n<td>\r\n<p>3.33<\/p>\r\n<\/td>\r\n<td>\r\n<p>15.83<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Average Return = (12.73 \u2013 11.53 + 29.24 + 15.83) \/ 4 = 11.57%<\/b><\/strong><\/p>\r\n<p><strong><b>Step 2: Risk (Standard Deviation)<\/b><\/strong><\/p>\r\n<p>We now assign probabilities to each year\u2019s return to measure variability.<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Rate of Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Probability<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Deviation from Avg (11.57%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>(Deviation\u00b2 \u00d7 Probability)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>12.73<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.25<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.16<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.336<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-11.53<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.20<\/p>\r\n<\/td>\r\n<td>\r\n<p>-23.10<\/p>\r\n<\/td>\r\n<td>\r\n<p>106.632<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>29.24<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.30<\/p>\r\n<\/td>\r\n<td>\r\n<p>17.67<\/p>\r\n<\/td>\r\n<td>\r\n<p>93.600<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2022<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>15.83<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.25<\/p>\r\n<\/td>\r\n<td>\r\n<p>4.26<\/p>\r\n<\/td>\r\n<td>\r\n<p>4.536<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Variance = 205.104<\/b><\/strong><\/p>\r\n<p><strong><b>Interpretation<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Average Return = 11.57%<\/b><\/strong>\u2192 Infosys delivered a moderate long-term return.<\/li>\r\n<li><b><\/b><strong><b>Standard Deviation = 14.32%<\/b><\/strong>\u2192 Returns are volatile, showing significant ups and downs.<\/li>\r\n<li>The negative return in 2020 highlights the risk of equity investments, while 2021 shows the potential for high gains.<\/li>\r\n<\/ul>\r\n<p><strong><b>Comparative Illustration<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Security<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Average Return<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Standard Deviation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Risk Level<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Infosys<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>11.57%<\/p>\r\n<\/td>\r\n<td>\r\n<p>14.32%<\/p>\r\n<\/td>\r\n<td>\r\n<p>High<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>9.20%<\/p>\r\n<\/td>\r\n<td>\r\n<p>8.50%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Moderate<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Government Bond<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>6.00%<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.50%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Very Low<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Return calculation of Portfolio ( Two Assets)' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h3 style=\"text-align: left\"><strong>5.4 Return Calculation of Portfolio ( Two Assets)<\/strong><\/h3>\r\n<p>&nbsp;<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77231 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio.png\" alt=\"Return Calculation of Portfolio\" width=\"1746\" height=\"1512\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio.png 1746w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-300x260.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-1024x887.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-768x665.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-1536x1330.png 1536w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-50x43.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-100x87.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-150x130.png 150w\" sizes=\"(max-width: 1746px) 100vw, 1746px\" \/><\/p>\r\n<p><strong><b>Portfolio Return Calculation \u2013 Two or More Assets<\/b><\/strong><\/p>\r\n<p>When an investor holds multiple securities, the <strong><b>portfolio\u2019s expected return<\/b><\/strong>\u00a0is simply the <strong><b>weighted average<\/b><\/strong>\u00a0of the returns of the individual securities. The weight of each security is based on the proportion of funds invested in it.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>Where:<\/p>\r\n<ul>\r\n<li>= Expected portfolio return<\/li>\r\n<li>= Proportion of investment in each security<\/li>\r\n<li>= Expected return of each security<\/li>\r\n<li>Sum of weights = 1<\/li>\r\n<\/ul>\r\n<p><strong><b>Example Portfolio \u2013 Latest Context<\/b><\/strong><\/p>\r\n<p>Suppose Mr. Arjun invests in six companies with the following allocations and expected returns:<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Security<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Proportion of Investment<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Expected Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Infosys<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>20%<\/p>\r\n<\/td>\r\n<td>\r\n<p>14%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reliance Industries<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>25%<\/p>\r\n<\/td>\r\n<td>\r\n<p>16%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>15%<\/p>\r\n<\/td>\r\n<td>\r\n<p>10%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Tata Motors<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10%<\/p>\r\n<\/td>\r\n<td>\r\n<p>18%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>ITC<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>20%<\/p>\r\n<\/td>\r\n<td>\r\n<p>12%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Adani Enterprises<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10%<\/p>\r\n<\/td>\r\n<td>\r\n<p>20%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Step 1: Weighted Average Return<\/b><\/strong><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>So, the <strong><b>expected portfolio return = 14.5%<\/b><\/strong>.<\/p>\r\n<p><strong><b>Step 2: Contribution of Each Security<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Security<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Weight<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Contribution (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Infosys<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.20<\/p>\r\n<\/td>\r\n<td>\r\n<p>14<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reliance<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.25<\/p>\r\n<\/td>\r\n<td>\r\n<p>16<\/p>\r\n<\/td>\r\n<td>\r\n<p>4.0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.15<\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.5<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Tata Motors<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.10<\/p>\r\n<\/td>\r\n<td>\r\n<p>18<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>ITC<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.20<\/p>\r\n<\/td>\r\n<td>\r\n<p>12<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.4<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Adani Enterprises<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.10<\/p>\r\n<\/td>\r\n<td>\r\n<p>20<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Portfolio<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1.00<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u2013<\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>14.5<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Insights<\/b><\/strong><\/p>\r\n<ul>\r\n<li>The portfolio return is <strong><b>not dominated by one stock<\/b><\/strong>; it is the weighted sum of all.<\/li>\r\n<li>Reliance contributes the most (4%) because of its higher weight and decent return.<\/li>\r\n<li>Adani Enterprises has the highest individual return (20%), but since only 10% is invested, its contribution is limited to 2%.<\/li>\r\n<li>Diversification ensures that even if one stock underperforms, the portfolio return remains balanced.<\/li>\r\n<\/ul>\r\n<p><strong><b>Portfolio Risk and Return \u2013 Two Securities (New Example)<\/b><\/strong><\/p>\r\n<p>When analyzing a portfolio of two securities, we must consider not only the <strong><b>individual risks<\/b><\/strong>\u00a0(variance or standard deviation of returns) but also the <strong><b>relationship between the securities<\/b><\/strong>. This relationship is captured through <strong><b>covariance<\/b><\/strong>\u00a0and the <strong><b>correlation coefficient<\/b><\/strong>.<\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Covariance (CovAB)<\/b><\/strong>measures how two securities move together.<\/li>\r\n<li><b><\/b><strong><b>Correlation (\u03c1AB)<\/b><\/strong>ranges between \u20131 and +1, showing the strength and direction of the relationship.<\/li>\r\n<li>Portfolio risk is reduced when securities are not perfectly correlated.<\/li>\r\n<\/ul>\r\n<p><strong><b>Example: Reliance Industries &amp; HDFC Bank<\/b><\/strong><\/p>\r\n<p><strong><b>Returns Data (5 Years)<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Reliance Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>HDFC Bank Return (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>12<\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>15<\/p>\r\n<\/td>\r\n<td>\r\n<p>10<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-5<\/p>\r\n<\/td>\r\n<td>\r\n<p>-2<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>20<\/p>\r\n<\/td>\r\n<td>\r\n<p>14<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2022<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>18<\/p>\r\n<\/td>\r\n<td>\r\n<p>12<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Step 1: Mean Return &amp; Standard Deviation<\/b><\/strong><\/p>\r\n<p><strong><b>Reliance<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Mean Return = (12 + 15 \u2013 5 + 20 + 18) \/ 5 = <strong><b>12%<\/b><\/strong><\/li>\r\n<li>Variance = [(0\u00b2 + 3\u00b2 + (\u201317)\u00b2 + 8\u00b2 + 6\u00b2)] \/ 5 = 338 \/ 5 = 67.6<\/li>\r\n<li>Standard Deviation = \u221a67.6 = 8. <strong><b>22%<\/b><\/strong><\/li>\r\n<\/ul>\r\n<p><strong><b>HDFC Bank<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Mean Return = (8 + 10 \u2013 2 + 14 + 12) \/ 5 = 8.<strong><b>4%<\/b><\/strong><\/li>\r\n<li>Variance = [(\u20130.4\u00b2 + 1.6\u00b2 + (\u201310.4)\u00b2 + 5.6\u00b2 + 3.6\u00b2)] \/ 5 = 146 \/ 5 = 29.2<\/li>\r\n<li>Standard Deviation = \u221a29.2 = 5.<strong><b>40%<\/b><\/strong><\/li>\r\n<\/ul>\r\n<p><strong><b>Step 2: Covariance &amp; Correlation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Reliance Deviation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>HDFC Deviation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Product<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<td>\r\n<p>-0.4<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>3<\/p>\r\n<\/td>\r\n<td>\r\n<p>1.6<\/p>\r\n<\/td>\r\n<td>\r\n<p>4.8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-17<\/p>\r\n<\/td>\r\n<td>\r\n<p>-10.4<\/p>\r\n<\/td>\r\n<td>\r\n<p>176.8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<td>\r\n<p>5.6<\/p>\r\n<\/td>\r\n<td>\r\n<p>44.8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2022<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>6<\/p>\r\n<\/td>\r\n<td>\r\n<p>3.6<\/p>\r\n<\/td>\r\n<td>\r\n<p>21.6<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<ul>\r\n<li>Covariance = (248 \/ 5) = <strong>49<\/strong>.<strong><b>6<\/b><\/strong><\/li>\r\n<li>Correlation (\u03c1AB) = CovAB \/ (\u03c3A \u00d7 \u03c3B) = 49.6 \/ (8.22 \u00d7 5.40) =<strong>0.11<\/strong><\/li>\r\n<\/ul>\r\n<p>Interpretation: Reliance and HDFC Bank have a <strong><b>low positive correlation<\/b><\/strong>, meaning they don\u2019t move exactly together. This allows diversification benefits.<\/p>\r\n<p><strong><b>Step 3: Portfolio Return &amp; Risk<\/b><\/strong><\/p>\r\n<p>Suppose the portfolio weights are:<\/p>\r\n<ul>\r\n<li>Reliance = 60%<\/li>\r\n<li>HDFC Bank = 40%<\/li>\r\n<\/ul>\r\n<p><strong><b>Portfolio Return<\/b><\/strong><\/p>\r\n<p>R<sub>p <\/sub>=(0.60 *12)+(0.40*8.4)=7.2+3.36 =10.56%<\/p>\r\n<p><strong><b>Portfolio Risk<\/b><\/strong><\/p>\r\n<p data-path-to-node=\"7,0,0\">\u03c3\u00b2\u209a = (0.60\u00b2 \u00d7 8.22\u00b2) + (0.40\u00b2 \u00d7 5.40\u00b2) + (2 \u00d7 0.60 \u00d7 0.40 \u00d7 8.22 \u00d7 5.40 \u00d7 0.11)<\/p>\r\n<p data-path-to-node=\"7,1,0\">\u03c3\u00b2\u209a = (0.36 \u00d7 67.6) + (0.16 \u00d7 29.2) + (2 \u00d7 0.24 \u00d7 44.2 \u00d7 0.11)<\/p>\r\n<p data-path-to-node=\"7,2,0\">\u03c3\u00b2\u209a = 24.34 + 4.67 + 2.33 = 31.34<\/p>\r\n<p data-path-to-node=\"7,3,0\">\u03c3\u209a = \u221a31.34 = 5.60%<\/p>\r\n<p><strong><b>Insights<\/b><\/strong><\/p>\r\n<ul>\r\n<li>Reliance alone has a risk of 8.<strong><b>22%<\/b><\/strong>, HDFC Bank alone has <strong><b>5.40%<\/b><\/strong>.<\/li>\r\n<li>The combined portfolio risk is 5.<strong><b>60%<\/b><\/strong>, lower than Reliance\u2019s individual risk.<\/li>\r\n<li>Diversification reduces risk because the two securities are not perfectly correlated.<\/li>\r\n<\/ul><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Risk calculation of Portfolio ( Two Assets)' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h3 style=\"text-align: left\"><strong>5.5 Return Calculation of Portfolio ( Two Assets)<\/strong><\/h3>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77232 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2.png\" alt=\"Return Calculation of Portfolio\" width=\"1800\" height=\"1548\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2.png 1800w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-300x258.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-1024x881.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-768x660.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-1536x1321.png 1536w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-50x43.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-100x86.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Return-Calculation-of-Portfolio-Part-2-150x129.png 150w\" sizes=\"(max-width: 1800px) 100vw, 1800px\" \/><\/p>\r\n<p><strong><b>Understanding Portfolio Risk<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Individual Security Risk<\/b><\/strong>: Measured by the <strong><b>variance<\/b><\/strong>or <strong><b>standard deviation<\/b><\/strong>\u00a0of its returns.<\/li>\r\n<li><b><\/b><strong><b>Portfolio Risk<\/b><\/strong>: Not just a weighted average of individual risks. It depends on how securities move together, captured by <strong><b>covariance<\/b><\/strong>and <strong><b>correlation<\/b><\/strong>.<\/li>\r\n<li><b><\/b><strong><b>Covariance<\/b><\/strong>: Shows whether two securities\u2019 returns move in the same direction.<\/li>\r\n<li><b><\/b><strong><b>Correlation (rAB)<\/b><\/strong>: Standardized measure of co-movement, ranging from \u20131 to +1.<\/li>\r\n<\/ul>\r\n<p>Interpretation:<\/p>\r\n<ul>\r\n<li>rAB = 1 \u2192 No diversification benefit.<\/li>\r\n<li>rAB = \u20131 \u2192 Perfect diversification (unsystematic risk eliminated).<\/li>\r\n<li>rAB = 0 \u2192 No relationship between returns.<\/li>\r\n<\/ul>\r\n<p><strong><b>Example: Reliance Industries &amp; ICICI Bank Returns<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Reliance (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>ICICI Bank (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2017<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>14<\/p>\r\n<\/td>\r\n<td>\r\n<p>9<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-2<\/p>\r\n<\/td>\r\n<td>\r\n<p>6<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<td>\r\n<p>11<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>18<\/p>\r\n<\/td>\r\n<td>\r\n<p>13<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>22<\/p>\r\n<\/td>\r\n<td>\r\n<p>17<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Mean &amp; Standard Deviation of Reliance<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Return<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Deviation (Return \u2013 Mean)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>(Deviation)^2<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2017<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>14<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-2<\/p>\r\n<\/td>\r\n<td>\r\n<p>-16<\/p>\r\n<\/td>\r\n<td>\r\n<p>256<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<td>\r\n<p>-6<\/p>\r\n<\/td>\r\n<td>\r\n<p>36<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>18<\/p>\r\n<\/td>\r\n<td>\r\n<p>4<\/p>\r\n<\/td>\r\n<td>\r\n<p>16<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>22<\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<td>\r\n<p>64<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<ul>\r\n<li>Mean Return = (14 \u2013 2 + 8 + 18 + 22) \/ 5 = <strong><b>12%<\/b><\/strong><\/li>\r\n<li>Variance = (0 + 256 + 36 + 16 + 64) \/ 5 = 7<strong><b>4.4<\/b><\/strong><\/li>\r\n<li>Standard Deviation = \u221a74.4 = 8.<strong><b>62%<\/b><\/strong><\/li>\r\n<\/ul>\r\n<p><strong><b>Mean &amp; Standard Deviation of ICICI Bank<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Return<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Deviation (Return \u2013 Mean)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>(Deviation)^2<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2017<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>9<\/p>\r\n<\/td>\r\n<td>\r\n<p>-2<\/p>\r\n<\/td>\r\n<td>\r\n<p>4<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>6<\/p>\r\n<\/td>\r\n<td>\r\n<p>-5<\/p>\r\n<\/td>\r\n<td>\r\n<p>25<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>11<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>13<\/p>\r\n<\/td>\r\n<td>\r\n<p>2<\/p>\r\n<\/td>\r\n<td>\r\n<p>4<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>17<\/p>\r\n<\/td>\r\n<td>\r\n<p>6<\/p>\r\n<\/td>\r\n<td>\r\n<p>36<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<ul>\r\n<li>Mean Return = (9 + 6 + 11 + 13 + 17) \/ 5 = 11. <strong><b>2%<\/b><\/strong><\/li>\r\n<li>Variance = (4 + 25 + 0 + 4 + 36) \/ 5 = 13.<strong><b>8<\/b><\/strong><\/li>\r\n<li>Standard Deviation = \u221a13.8 = 3.<strong><b>71%<\/b><\/strong><\/li>\r\n<\/ul>\r\n<p><strong><b>Covariance &amp; Correlation<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Year<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Reliance Deviation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>ICICI Deviation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Product<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2017<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<td>\r\n<p>-2<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2018<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-16<\/p>\r\n<\/td>\r\n<td>\r\n<p>-5<\/p>\r\n<\/td>\r\n<td>\r\n<p>80<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2019<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>-6<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<td>\r\n<p>0<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2020<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>4<\/p>\r\n<\/td>\r\n<td>\r\n<p>2<\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>2021<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>8<\/p>\r\n<\/td>\r\n<td>\r\n<p>6<\/p>\r\n<\/td>\r\n<td>\r\n<p>48<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<ul>\r\n<li>Covariance = (0 + 80 + 0 + 8 + 48) \/ 5 = <strong><b>27.2<\/b><\/strong><\/li>\r\n<li>Correlation = CovAB \/ (\u03c3A \u00d7 \u03c3B) = 27.2 \/ (8.62 \u00d7 3.71) = 0.<strong><b>85<\/b><\/strong><\/li>\r\n<\/ul>\r\n<p><strong><b>Portfolio Return &amp; Risk<\/b><\/strong><\/p>\r\n<p>Weights:<\/p>\r\n<ul>\r\n<li>Reliance = 60%<\/li>\r\n<li>ICICI Bank = 40%<\/li>\r\n<\/ul>\r\n<p><strong><b>Portfolio Return (Rp):<\/b><\/strong>\u00a0= (0.60 \u00d7 12) + (0.40 \u00d7 11.2) = <strong><b>11.68%<\/b><\/strong><\/p>\r\n<p><strong><b>Portfolio Risk (\u03c3p):<\/b><\/strong><\/p>\r\n<p>\u03c3\u00b2\u209a = (w\u00b2\u2090\u03c3\u00b2\u2090) + (w\u00b2\u1d66\u03c3\u00b2\u1d66) + (2w\u2090w\u1d66\u2090\u1d66r\u2090\u1d66)<\/p>\r\n<p>= (0.36 \u00d7 74.4) + (0.16 \u00d7 13.8) + (2 \u00d7 0.60 \u00d7 0.40 \u00d7 8.62 \u00d7 3.71 \u00d7 0.85) = 26.78 + 2.21 + 26.25 = <strong><b>55.24<\/b><\/strong><\/p>\r\n<p>\u03c3p = \u221a55.24 = <strong><b>7.43%<\/b><\/strong><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tvar resize_24496 = jQuery('.owl-carousel');\n\t\tresize_24496.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p>                    <\/div>\n\t\t        \n                    <div id=\"slides-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"slides-tab\">\n\t\t\t\t        <p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-11528 size-full\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" alt=\"\" width=\"612\" height=\"408\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png 612w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview-300x200.png 300w\" sizes=\"(max-width: 612px) 100vw, 612px\" \/><\/p>                    <\/div>\n\t\t        \n                    <div id=\"videos-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"videos-tab\">\n\t\t\t\t        <p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-11528 size-full\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" alt=\"\" width=\"612\" height=\"408\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png 612w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview-300x200.png 300w\" sizes=\"(max-width: 612px) 100vw, 612px\" \/><\/p>                    <\/div>\n\t\t                    <\/div>\n        <\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Study Slides Videos 5.1 Risk Return Relationship The most fundamental tenet of finance literature is that there is a trade-off between risk and return. The risk-return relationship requires that the return on a security should be commensurate with its riskiness. If the capital markets are operationally efficient, then all investment assets should provide a rate &#8230; <a title=\"Learn About Measuring Risk &#038; Return of Mutual Fund\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/course\/investment-analysis-course\/risk-return-relationship\/\" aria-label=\"Read more about Learn About Measuring Risk &#038; Return of Mutual Fund\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":16695,"menu_order":5,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-25002","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/25002","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=25002"}],"version-history":[{"count":9,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/25002\/revisions"}],"predecessor-version":[{"id":38463,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/25002\/revisions\/38463"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/16695"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=25002"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=25002"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}