The risk of a portfolio – Calculator and formula

We often say that risk and return are two sides of the same coin. You can’t discuss one without the other. In the previous post, we showed you how to calculate the return on a portfolio of assets. In this post, we explain the formula for portfolio risk. We also offer an easy-to-use portfolio risk […]

Portfolio return calculator and formula

In this post, we explain the formula behind the calculation of portfolio returns. Furthermore, we provide a free online portfolio return calculator, which works as a portfolio expected return calculator as well as a portfolio realized return calculator. Finally, with this port, we make an introduction to the modern portfolio theory as well. So far […]

Risk premium – What does it mean?

Different stocks offer different levels of expected return. What causes stock A’s expected return to be higher than stock B’s expected return? How does the expected return of a risky asset relate to the risk-free rate of return? In this post, we answer both questions by introducing the concept of risk premium. Learning objectives Define […]

Risk-free rate of return – Is there a riskless asset?

Most assets in our world are risky: Their future payoffs can take many different values, some of them (very) high, others (very) low. Think about stocks. If you invest in, say, Amazon shares today, you might have a target price in mind for the next year. However, the actual price in a year may be […]

The risk appetite of investors

How do investors differ in terms of their risk preferences? Are we all risk lovers? Or, do we prefer to avoid or minimize risk if we can? Perhaps our risk appetite is more dynamic. For instance, it may depend on the situation and our circumstances. In this post, we will elaborate on how financial economists […]

Expected return – A forward-looking return measure

Historical (or realized) returns are particularly useful when evaluating an asset’s past performance. As such they are backward-looking measures. But, in order to forecast an asset’s future performance, we need a forward-looking measure. This measure is called the expected return. Learning objectives: Learn how to calculate an asset’s expected return. Understand why we need to […]

Return volatility – A measure of risk

In finance, we often say that risk and return are the two sides of a coin. Therefore, metrics such as arithmetic average return and geometric average are helpful when evaluating the past performance of an investment but are not sufficient on their own without proper consideration of risk. In this post, we introduce return volatility […]

Average return – Arithmetic vs geometric

When investors analyze the past performance of their investments in stocks, bonds, etc., one of the key metrics they focus on is the average return, which is also known as the average historical return or average realized return. Learning objectives: Use a series of past returns to calculate the average realized return. Understand the distinction […]

Formula for holding period return calculations

In this post, we explain the formula for holding period return calculations and offer an easy-to-use holding period return calculator. When investors buy securities (e.g., stocks), they may hold them for months or years before selling them. The duration during which an investor holds on to a particular security is known as the holding period […]