The Return and Risk of a Financial Portfolio

Free CFA Level I lesson in Quantitative Methods. 12 min read, ~1,816 words.

Portfolio expected return is the weighted average of asset returns. Portfolio variance is NOT, the cross term is essential. Correlation below +1 produces diversification benefit. Lower correlation means greater variance reduction. Correlation rescales covariance to, enabling cross-asset comparison. Minimum-variance frontier = lowest variance for each return level. Efficient frontier =...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Check Your Understanding
• Exam Shortcuts

Learning objectives

• return and risk of a financial portfolio

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