Portfolio: A portfolio is the total collection of the investments held by an investor, which includes bonds, stocks, options, futures, and other investments like gold or limited partnerships. Most portfolios are diversified to protect against the risk of single securities. So, portfolio analysis involves analyzing the portfolio as a whole. The return of a portfolio is the weighted average of the return of its component assets. Portfolio risks can be calculated by considering the standard deviation of the variance of actual returns of the portfolio over time. To determine: The reason why the total risk of a portfolio is not equal to the weighted average of the risks of securities in the portfolio.

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Chapter 12, Problem 3CT

Summary Introduction

Portfolio:

A portfolio is the total collection of the investments held by an investor, which includes bonds, stocks, options, futures, and other investments like gold or limited partnerships. Most portfolios are diversified to protect against the risk of single securities. So, portfolio analysis involves analyzing the portfolio as a whole.

The return of a portfolio is the weighted average of the return of its component assets. Portfolio risks can be calculated by considering the standard deviation of the variance of actual returns of the portfolio over time.

To determine:

The reason why the total risk of a portfolio is not equal to the weighted average of the risks of securities in the portfolio.

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