portfolio math Flashcards

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1
Q

expected value of the portfolio return

A

weighted average of each returns

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2
Q

portfolio variance

A

matrix of covariance (notatki)

weightened sum of 3 variances and 6 covariances (or 3 uniqe covariances *2)

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3
Q

covariance

A

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

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4
Q

covariance matrix of the portfolio

A

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

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5
Q

correlation

A

cov/dev1*dev2

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6
Q

cov of portfolio based on probability (joint probability)

A

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

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7
Q

safety first rules

A

focus on shortfall risk. the risk of the portfolio decrease under some certain value

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8
Q

Safety first ratio

A

SFRatio =(E(rp)-Rl)/dev

Rl - minimun value (%)

we want to maximize that ratio

the distance betwee n the mean and shortfall level

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