Portfolio Risk and Return I

Mastering Portfolio Risk and Return I for the CFA Level 1 Exam

Are you ready to dive into the exciting world of portfolio risk and return? We’ve prepared an engaging guide to help you tackle these concepts with confidence for the CFA Level 1 Exam. Let’s get started!

Returns Measures

Crack the code to measuring portfolio returns! Grasp the concept of single-period returns using the holding period return formula and learn to annualize returns. Dive into multi-period returns and understand various ways to calculate average return, including arithmetic mean, geometric mean, and money-weighted return. Finally, get a handle on other return expressions like gross and net returns, pre and post-tax nominal returns, real returns, and leveraged returns.

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Expected Returns and Standard Deviation of Returns

Make sense of how to calculate expected returns and standard deviation of returns for individual assets. Understand how to extend these concepts to a portfolio, while appreciating the limitations involved. Finally, get to grips with covariance and correlation, and see how they dictate the relationship between asset returns in a portfolio.

► Excited to unravel portfolio return estimation? Begin here.

Theory of Portfolio Diversification

Get the lowdown on portfolio diversification theory and become proficient in the portfolio standard deviation formula. Explore the pivotal role of correlation in diversification, and how it can drastically reduce portfolio risk. Lastly, familiarize yourself with the concepts of the minimum-variance and efficient frontiers and their practical implications for portfolio choice.

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Investor’s Optimal Portfolio

Decipher the intricacies of risk aversion and its impact on investor behavior. Get your head around indifference curves, which represent levels of satisfaction from investments. Unearth the concept of the efficient frontier and the capital allocation line (CAL), and how they help determine the optimal portfolio for any given investor.

► Ready to understand what drives investor decisions? Dive in here.