portfolio math Flashcards
expected value of the portfolio return
weighted average of each returns
portfolio variance
matrix of covariance (notatki)
weightened sum of 3 variances and 6 covariances (or 3 uniqe covariances *2)
covariance
0 = ads no risk
>0 add risk
<0 reduce risk
to the portfolio
cov is positive when on the same side of their expected value at the same time
covariance matrix of the portfolio
macierz kowariancji między składowymi portfela (po przekątnych wariancje)
n securities
n = variances
n^2-n = covariances
(N^2-n)/2 = distinct covariances
when we want to use decimal instead of % we need to podzielić over 10000 not 100
correlation
cov/dev1*dev2
cov of portfolio based on probability (joint probability)
tak jak wzór na cov ale każdy składnik sumy należy pomnożyć przez joint probability 1/(1-n) weights zamiast dzielić przez n-1.
expected value is the mean in this case
safety first rules
focus on shortfall risk. the risk of the portfolio decrease under some certain value
Safety first ratio
SFRatio =(E(rp)-Rl)/dev
Rl - minimun value (%)
we want to maximize that ratio
the distance betwee n the mean and shortfall level