Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Aquaman Stock has exhibited a standard deviation in share returns of 0.4, whereas Green Lantern Stock has exhibited a standard deviation of 0.3. The correlation coefficient between the share returns is 0.4. What is the standard deviation of a portfolio composed of 60 per cent Aquaman and 40 per cent Green Lantern?
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