Expected return of a portfolio is the weighted average return expected from the portfolio. It is calculated by multiplying expected return of each individual asset with its percentage in the portfolio and the summing all the component expected returns.
Investors define the expected return as the probable return for a portfolio based on past returns or as the expected value of the portfolio derived from a probability distribution of probable returns. In the short term, the expected return represents a random variable that takes different values ba...
Well, let's take a look on the difference of the actual return of a given portfolio and its expected return: αi,t=ri,t−E[ri,t]αi,t=ri,t−E[ri,t] That's in fact Jensen's alpha. If it is positive, the fund/portfolio "beats" the expected return and we would assume...
The additional return an investor receives for holding a risky market portfolio instead of risk-free assets is termed as a market risk premium. Analysts and investors use theCapital Asset Pricing Model(CAPM) to calculate the acceptable rate of return. The market risk premium is an essential part...
However, in the long run, if one consistently invests in positions with superior expected returns, then he should show superior returns in his portfolio or trading account. All the facets of a strategy are incorporated into expected return – in particular, the probabilities of making or losing ...