Portfolio expected return and risk

A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk

analysis an integral part of finance. Just like standalone assets and securities$,$ portfolios are also exposed to risk. Portfolio risk refers to the

possibility that an investment portfolio will not generate the expected rate of return.

Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.

Consider the following case:

Bob is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following

table:

The expected return on Bob's stock portfolio is

Suppose each stock in the preceding portfolio has a correlation coefficient of $0\mathrm{.}4(=0\mathrm{.}4)$ with each of the other stocks. If the weighted average of

the risk $($standard deviation$)$ of the individual securities in the partially diversified portfolio of four stocks is $28\%,$ the portfolio's standard deviation $({}_p$

most likely is

$28\%.$