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Portfolio risk, return, and diversification

Portfolio management / portfolio construction · Lesson 2 of 4

Lesson 2 of 4

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Lesson 2 of 4 · Portfolio management / portfolio construction

Portfolio risk, return, and diversification

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By the end you’ll be able to

Calculate and interpret expected return, variance, standard deviation, covariance, and correlation for individual assets and portfolios.
Calculate and interpret the expected return and variance of a two-asset portfolio and explain the role of asset weights, asset risk, and correlation.
Explain how diversification reduces unsystematic risk and distinguish between diversifiable and non-diversifiable risk.

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Evaluate the effects of combining a risky asset portfolio with a risk-free asset on expected return and risk.

Interpret the implications of portfolio statistics for investor decision-making and basic asset allocation choices.

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