For the purpose of portfolio construction, the financial assets are primarily looked at from the perspective of risk and returns. Based on the analysis of risk and returns we analyse thousands of securities and portfolio combinations before making the right selection for our own portfolio. Therefore, it is important that we have a deeper understanding […]

# Portfolio Risk and Return - part 1

## How to Calculate the Holding Period Returns

For investments, the Holding Period Return (HPR) refers to the total return earned from an investment or an investment portfolio over the holding period, that is, the period for which the asset or portfolio was held by the investor. The holding period can be anything such as 1 day, 1 month, 6 months, 1 year, […]

## Portfolio Risk & Return – Part 1A – Video

This video by Arif Irfanullah provides a very clear conceptual understanding of the portfolio risk and return concepts as a part of the CFA Level 1 syllabus. This first video talks about Major return measures Major asset classes for investments Evaluating investments Covariance and correlation Risk and return of a two asset portfolio Efficient Frontier […]

## Portfolio Risk & Return – Part 1B – Video

This video by Arif Irfanullah provides a very clear conceptual understanding of the portfolio risk and return concepts as a part of the CFA Level 1 syllabus. This video talks about Markowitz Efficient Frontier Capital Allocation Line Risk Aversion Risk-Return Indifference Curve Optimal Investor Portfolio

## Arithmetic Returns Vs. Geometric Returns

While calculating the returns on financial assets, we will often look at the returns from multiple holding periods. For example, one may hold an asset for five years, and the asset may have earned total 150% returns over this period of 7 years. However, it is difficult to interpret these returns as we cannot compare […]

## How to Calculate Money-weighted Returns

In the previous article, we learned about arithmetic returns and geometric returns. However, the problem with these measures is that they do not consider the amount of investment made in each period. For example, in the first year, we may have an investment of USD 5,000 while in the second year, the investment may only […]

## How to Calculate Annualized Returns

When we make investments, we invest our money in different assets and earn returns for different periods of time. For example, an investment in a short-term Treasury bill will be for 3 months. We may invest in a stock and exit after a week for a few days. For the purpose of making the returns […]

## How to Calculate Portfolio Returns

We have learned about how to calculate the returns on single assets. However, portfolio managers will have many assets in their portfolios in different proportions. The portfolio manager will have to therefore calculate the returns on the entire portfolio of assets. The returns on the portfolio are calculated as the weighted average of the returns […]

## Gross and Net Returns Calculations

In an investment management company such as a mutual fund, you will come across two types of returns being calculated, namely, returns on a gross, or net of fee basis. While there are some industry practices for calculating these returns, all fund managers don’t strictly follow one method. In simple words, the gross returns refer […]

## How to Calculate Leveraged Returns

We have looked at a variety of return measures. However, till now we assumed that the investment is made by the investor’s own money. However, in reality, the investor will not use only his money for making investments. The position will be leveraged. For example, while trading in futures contracts, the investor may have to […]