SUMMARY
Returns from an investment are often fraught with risk, because the future is uncertain. Risk, unlike complete uncertainty, is measurable as the probabilities of various outcomes are known. The expected return is based on probabilities— discrete or continuous. It is the mean of probability distribution. In cases of international investment, it also takes into account changes in the exchange rate. Portfolio return is the weighted average of the expected returns from different securities existing in the portfolio.
Risk represents the variance between the probable returns and the expected return. Standard deviation is the square root of variance. Risk of a portfolio of assets depends on the co-variance/correlation of returns between the ...
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