1 II. The Two Security Case and The Case of Multiple Assets

2 Can calculate from past data For future can only estimate with uncertainty How Proceed Simple Example Develop Equations of Portfolio Analysis Return

3 Return R 1 Probability How Summarize

5

6

7

8

9 RP.0.01E(R) = =

10 DERIVATION OF PORTFOLIO CHARACTERIESTICS 2 SECURTITIES R p = X A R A + X B R B 1.E(R p ) = X A E (R A ) + X B E (R B ) 2. 3.

11

12 THREE QUALITIES THAT ARE IMPORTANT 1.EXPECTED RETURN 2.STANDARD DEVIATION 3.CORRELATION

13

14 More than two securities 1. 2.

OR Basis of every product and insight in portfolio management since Markowitz.