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Portfolio Management and Return Measurement Techniques

Learn about historical data, arithmatic mean, geometric mean, expected return calculations, capital allocation line, and market line models. Understand the relationship between Arithmetic Mean (AM) and Geometric Mean (GM) in determining returns based on volatility.

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Portfolio Management and Return Measurement Techniques

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  1. Portfolio Management

  2. 4. Return Measurement 1. Historical Data AM : Arithmatic Mean = r = r1 + r2 +…..rn / n GM : Geometric Mean = (1 + r)n = (1 + r1)(1 + r2)…..(1 + rn) 2. Expected Data Expected Return Er = ∑ (ri × Pi) 3. Theoretical Data CAL : Capital Allocation Line CML : Capital Market Line SML : Security Market Line ADL or Multi Factor Model www.Safeecollege.com

  3. Summary : AM = GM when return for each period are Same AM > GM when return for each period are different In fact more is the volatility between period returns, AM would be more deviated from GM. www.Safeecollege.com

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