You have set up a commodity portfolio with two holdings: a holding in gold of £120m, and a holding in silver of £90m. The annual volatilities of gold and silver are 30% and 20% respectively. The correlation between gold and silver is 0.60. What would be the individual and portfolio total value at risk over a nine-month period from the two commodities? The confidence limit is 1.96 standard deviation
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.
You have set up a commodity portfolio with two holdings: a holding in gold of £120m, and a holding in silver of £90m. The annual volatilities of gold and silver are 30% and 20% respectively. The correlation between gold and silver is 0.60. What would be the individual and portfolio total value at risk over a nine-month period from the two commodities? The confidence limit is 1.96 standard deviation
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