Statistical measures of standalone risk

Remember, the expected value of a probability distribution is a statistical measure of the average $($mean$)$ value expected to occur during all possible circumstances. To compute an asset's expected return under a range of possible circumstances $($or states of nature$),$ multiply the anticipated return expected to result during each state of nature by its probability of occurrence.

Consider the following case:

Tyler owns a two$-$stock portfolio that invests in Falcon Freight Company $($FF$)$ and Pheasant Pharmaceuticals $($PP$).$ Three$-$quarters of Tyler's portfolio value consists of FF$\text{'}$s shares, and the balance consists of PP$\text{'}$s shares.

Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table:

$\backslash$table$[[$Market Condition,Probability of Occurrence,Falcon Frelght,Pheasant Pharmaceuticals$],[$Strong$,0\mathrm{.}20,42\mathrm{.}5\%,59\mathrm{.}5\%$