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27 June, 17:42

4. Suppose you form a portfolio that invests 10% in T, 20% in JPM, 30% in NEM and 40% in CVX. Calculate (a) portfolio returns for each month, (b) portfolio's average monthly return, and (c) standard deviation of portfolio monthly returns. Discuss. Highlight your final answers. 5. Calculate the beta of your portfolio. Discuss. Highlight your final answers.

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  1. 27 June, 21:18
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    Expected return E (r) actually means the average return, Expectation is a measure of the averaging. Here in this equation, we are using expected return (average returns) of the stocks. It is crystal clear that the return of the portfolio using average returns of the containing stocks will also be an average measure.

    E (r) ptf = W (T) * E (T) + W (JPM) * E (JPM) + W (NEM) * E (NEM) + W (CVX) * E (CVX)

    = (0.1*0.85%) + (0.2*1.36%) + (0.3*0.60%) + (0.4*0.9%) = 0.897%=0.9%

    For calculating monthly return of the portfolio, first of all, you have to calculate daily return of the portfolio and sum up them all to get the monthly return. For calculating daily return of the portfolio, you have to calculate each stocks daily returns and multiply them with the respective weight. Like wise you can have the return of the portfolio in daily frequency, all this daily return were added (for a particular month) together to arrive for the monthly return.

    Daily (r) ptf = W (T) * R (T) + W (JPM) * R (JPM) + W (NEM) * R (NEM) + W (CVX) * R (CVX)

    here R is the daily return of the respective stocks

    Do this for all the available trading days in a month and sum up all to arrive at the monthly return of the portfolio.
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