Question

In: Finance

Discuss the returns for the various asset classes over the past several decades Define the coefficient...

  1. Discuss the returns for the various asset classes over the past several decades
  2. Define the coefficient of variation
  3. Define the sharp ration
  4. How is the expected return for a portfolio calculated?
  5. Define covariance

Solutions

Expert Solution

1. COEFFICIENT OF VARIATION

THE COEFFICIENT VARIATION IS A STATISTICAL DISPERSION OF DATA POINT IN DATA SERIES AROUND THE MEAN.

THE COEFFICIENT VARIATION REPRESENT THE RATIO OF STANDARD DEVIATION TO THE MEAN.

THE COEFFICIENT VARIATION USEFUL COMPARING THE DEGREE OF VARIATION FROM ONE DATA SERIES TO ANOTHER EVEN IF MEAN ARE DRASTICALLY.

FORMULA OF COEFFICIENT OF VARIATION

= STANDARD DEVIATION / MEAN

THE COEFFICIENT VARIATION IS HELPFUL WHEN USING THE RISK RATIO TO SELECT INVESTMENT.

2. SHARP RATIO

IN FINANCE ,THE SHARP RATIO IS THE WAY TO EXAMINATION THE PERFORMANCE OF THE INVESTMENT BY ADJUSTING FOR ITS RISK FACTOR

THE RATIO MEASURE THE EXCESS RETURN PER UNIT OF DEVIATION IN AN INVESTMENT ASSETS TRADING STRATEGY .

THE RATIO IS THE AVG. RETURN EARNED IN EXCESS OF THE RISK FREE RATE PER UNIT OF VOLATILITY.

YOU CAN EASILY LOCATE A SHARP RATIO IN THE FACT SHEET OF MUTUAL FUND.

THE SHARP RATIO IS NEGATIVE WHEN EXCESS RETURN IS NEGATIVE

3. THE CALCULATION OF EXPECTED RETURN PORTFOLIO

TO CALCULATE THE EXPECTED RETURN OF PORTFOLIO YOU NEED TO KNOW THE EXPECTED RETURN AND WEIGHT OF EACH ASSETS IN PORTFOLIO .

FOR CALCULATION EXPECTED RETURN OF PORTFOLIO SIMPLY COMPUTED THE WEIGHTED AVG. OF THE EXPECTED RETURN ON ALL ASSETS IN YOUR PORTFOLIO WITH EACH ASSETS RETURN WEIGHTED BY THE PROPORTION OF THE TOTAL PORTFOLIO EACH ASSETS REPRESENT.

4. CO VARIANCE

CO VARIANCE IS A MEASURE OF THE DIRECTIONAL RELATIONSHIP TO THE BETWEEN THE RETURN ON TWO RISKY ASSETS.

THE POSITIVE CO VARIANCE MEAN THAT ASSETS RETURN MOVE TOGETHER WHILE A NEGATIVE CO VARIANCE MEAN RETURN MOVE INVERSELY.

IT ONLY SHOW RETURN BETWEEN TWO ASSETS BUT IT DOES NOT SHOW THE STRENGTH OF THE RELATION BETWEEN TWO ASSETS.

CO VARIANCE HAVE A SIGNIFICANT APPLICATION IN FINANCE AND MODERN THEORY.

jeff jeffy answered 1 year ago
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