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How does standard deviation and variance affect portfolio risk, more so than expected return?
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- What statistical concept do many portfolio managers use to represent a risk when considering investment performance?According to modern portfolio theory, pair-wise covariance is more important to total portfolio risk than individual security variance. True or FalseSome financial theorists consider the variance of the distribution of expected rates of return to be a good measure of uncertainty. Discuss the reasoning behind this measure of risk and its purpose.
- why can variance/volatility of returns be a misleading measure of risk for an individual asset held as part of a portfolioWhy is the variance (or standard deviation) used as a measure of risk? What are the advantages and disadvantages of this risk measure?What does the term risk aversion mean, and howis risk aversion related to the expected return on astock?