**Capital Allocation Line (CAL) and Optimal Portfolio**

# now assume that we hold a portfolio of 4 tech stocks, Apple, Microsoft, Amazon and Yahoo…how do we start to calculate the expected return and volatility of that portfolio? # first input needed will be the weights of the stocks in the portfolio... You are considering adding a new stock to your portfolio that has an expected return of 4 percent. Before you buy this stock you would like to know its variance. Using historical data, calculate the variance of this stock's returns. The mean of these returns is simply the average. So you calculate the mean by summing all the returns and dividing by the number of returns. The calculations below

**Capital Allocation Line (CAL) and Optimal Portfolio**

Most of the readers of this blog already know how to make this calculation. However, one my goals for AllFinancialMatters is to reach out to those who wouldn’t normally hang out at personal finance blogs.... # now assume that we hold a portfolio of 4 tech stocks, Apple, Microsoft, Amazon and Yahoo…how do we start to calculate the expected return and volatility of that portfolio? # first input needed will be the weights of the stocks in the portfolio

**Capital Allocation Line (CAL) and Optimal Portfolio**

To answer this, we introduce the concept of mean-variance criterion, which states that Portfolio A dominates Portfolio B if E(R A) ? E(R B) and ? A ? ? B (i.e. portfolio A offers higher expected return and lower risk than portfolio B). If such is the case, then all investors would prefer A to B.... # now assume that we hold a portfolio of 4 tech stocks, Apple, Microsoft, Amazon and Yahoo…how do we start to calculate the expected return and volatility of that portfolio? # first input needed will be the weights of the stocks in the portfolio

**Capital Allocation Line (CAL) and Optimal Portfolio**

For any desired level of risk, a portfolio "based on" asset b will provide a higher expected return than one based on asset a. In this context, the phrase "based on" connotes a combination of the asset in question and the riskless asset with the amount of the latter positive, negative or zero as required to obtain the desired level of risk. Thus if the level of risk offered by asset a is... To answer this, we introduce the concept of mean-variance criterion, which states that Portfolio A dominates Portfolio B if E(R A) ? E(R B) and ? A ? ? B (i.e. portfolio A offers higher expected return and lower risk than portfolio B). If such is the case, then all investors would prefer A to B.

## How To Calculate Expected Return Of A Portfolio

### Capital Allocation Line (CAL) and Optimal Portfolio

- Capital Allocation Line (CAL) and Optimal Portfolio
- Capital Allocation Line (CAL) and Optimal Portfolio
- Capital Allocation Line (CAL) and Optimal Portfolio
- Capital Allocation Line (CAL) and Optimal Portfolio

## How To Calculate Expected Return Of A Portfolio

### To answer this, we introduce the concept of mean-variance criterion, which states that Portfolio A dominates Portfolio B if E(R A) ? E(R B) and ? A ? ? B (i.e. portfolio A offers higher expected return and lower risk than portfolio B). If such is the case, then all investors would prefer A to B.

- You are considering adding a new stock to your portfolio that has an expected return of 4 percent. Before you buy this stock you would like to know its variance. Using historical data, calculate the variance of this stock's returns. The mean of these returns is simply the average. So you calculate the mean by summing all the returns and dividing by the number of returns. The calculations below
- For any desired level of risk, a portfolio "based on" asset b will provide a higher expected return than one based on asset a. In this context, the phrase "based on" connotes a combination of the asset in question and the riskless asset with the amount of the latter positive, negative or zero as required to obtain the desired level of risk. Thus if the level of risk offered by asset a is
- For any desired level of risk, a portfolio "based on" asset b will provide a higher expected return than one based on asset a. In this context, the phrase "based on" connotes a combination of the asset in question and the riskless asset with the amount of the latter positive, negative or zero as required to obtain the desired level of risk. Thus if the level of risk offered by asset a is
- You are considering adding a new stock to your portfolio that has an expected return of 4 percent. Before you buy this stock you would like to know its variance. Using historical data, calculate the variance of this stock's returns. The mean of these returns is simply the average. So you calculate the mean by summing all the returns and dividing by the number of returns. The calculations below

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