Systematic Unsystematic Risk Determinants †Myassignmenthelp.Com

Questions: Explaining How Risk Of Shares Can Be Calculated By The Standard Deviation? Explaining How Adding More Shares To A Portfolio Can Affect The Risk Return? Explaining If One Of The Two Assets Is Risk Free Asset Then Identifying The Calculation Of Risk From Two Assets? Explaining The Distinction Between Systematic And Unsystematic Risk? Answers: Introducation The overall standard deviation is mainly calculated with the help of mathematical measurement, which directly averages the overall variance of the returns provided by the stock. Moreover standard deviation is also identified as the Dispersion of the set of data from its mean. this could eventually help in calculating as a square root of the variance that is derived from the return. The overall standard deviation mainly helps in identifying the volatility that a stock could have from the average return projected yearly. There are different types of data that is evaluated with the help of standard deviation, if the data point is further from the mean there is higher deviation and volatility in stock. Standard deviation is used in identifying the historical volatility of a stock, which could directly help in detecting the overall variations and returns that could be projected from an investment (Adamczyk et al. 2014). From the evaluation of the article Simon Hoyles there is no explanation on the risk factor, if overall investor decides to buy more shares. However, buying of different stocks mainly helps in diversifying the overall portfolio, which acts as an adequate hedging measure that could increase return from investment and reduce the negative impact of capital marketing volatility. Hence, use of more shares could eventually help in improving the relevant returns that could be generated from portfolio. Investors mainly use more than one stock in a portfolio by evaluating the correlation and coefficient condition. This evaluation of the overall correlation and coefficient condition mainly helps in identifying stocks that have negative correlation with each other. This could eventually help in reducing the risk from investment. Furthermore, the evaluation of the standard deviation is also essential, as it helps in portraying the overall risk from investment. Cho, et al. (2017) mentioned that in vestors with the help of correlation coefficient are able to select stocks that could nullify the negative impact from capital market. The overall standard deviation equation mainly uses two different types of Assets and the risk factor for determining the overall portfolio risk. Therefore, if one of the assets in the portfolio is risk free asset, then the standard deviation for one asset will be zero. This will mainly indicate that the overall standard deviation equation will portray only the risk of one stock and neglect the risk free return risk. Theequation will mainly reduce to zero after the stock weight is multiplied by standard deviation. Hence, it could be understood that risk of the portfolio will only come on one assets weight and standard deviation, if the other stock is risk free asset. A?t- Bodie (2013) mentioned that investors by using the risk free asset in portfolio are mainly able to reduce the risk from investment and generate higher returns. On the other hand, Sahalia and Felix (2015) argued that risk free asset provides a constant return and there is no chance of progress, where investors cannot hop on the rising return provided from the capital market. The risk that remains after using the diversification is mainly known as market risk, which directly attributes to the market risk source. These types of risk are also known as systematic risk or non-diversifiable risk, which cannot be reduced by the investors. There are different types of risk that can be mitigated by investors with adequate diversification methods.These kinds of risks are mainly termed as unique risk, firm specific risk, non-systematic risk, and diversifiable risk. Waemustafa and Suriani (2016) mentioned that identification of systematic and unsystematic risk would eventually help investors to take a relative steps in mitigating the overall unsystematic risk. The use of adequate diversification methods investors is able to reduce the unsystematic risk or diversifiable risk from the investment. On the other hand, Marshall (2015) argued that systematic risk cannot be reduced with the help of diversification, which directly increases the business of loss for an invest or. Calculating returns and SD of Asset A and B: Asset Expected return Standard deviation A B C A 11.50% 23% 1 0.25 0.4 B 14.00% 43% 0.25 1 0.15 C 18.00% 58% 0.4 0.15 1 Portfolio 1 Weight Expected return Standard deviation Weight 2 Expected return 2 A 40% 11.50% 23.00% 16.00% 1.32% B 60% 14.00% 43.00% 36.00% 1.96% Portfolio expected return 13.0% Variance 1.11% Portfolio standard deviation 10.54% Calculating returns and SD of Asset A, B and C: Portfolio 1 Weight Expected return Standard deviation A 60.00% 11.50% 23.00% B 22.50% 14.00% 43.00% C 17.50% 18.00% 58.00% Portfolio expected return 13.2% Variance 8.03% Portfolio standard deviation 28.33% Explaining the difference between risk and return of Portfolio 1 and 2: The overall portfolio 1 mainly has less risk, as the there are only two stocks in the portfolio, which has been adequately hedge. The portfolio comprises of 60% risky asset, while 40% lower risk assets is been used in the portfolio, which makes the portfolio SD at 10.54% and return at 13%. The portfolio 2 mainly consists of 3 stocks, where the weight f the portfolio is conducted on stock A, which has the least risk. However, portfolio 2 has a higher risk and return from investment. Therefore, the portfolio 2 can yield a higher return from investment by increasing risk of the investors. Calculating returns and SD of Asset A, B and F: Portfolio 1 Weight Expected return Standard deviation Weight 2 Expected return 2 A 4.80% 11.50% 23.00% 0.23% 1.32% B 75.00% 14.00% 43.00% 56.25% 1.96% F 20.20% 9.90% 4.08% 0.98% Portfolio expected return 13.1% Variance 1.13% Portfolio standard deviation 10.65% Calculating returns and SD of Asset A, B and C: Portfolio 1 Weight Expected return Standard deviation A 33.33% 11.50% 23.00% B 33.33% 14.00% 43.00% C 33.33% 18.00% 58.00% Portfolio expected return 14.5% Variance 11.54% Portfolio standard deviation 33.96% Calculating returns and SD of Asset A, B, C and F: Portfolio 1 Weight Expected return Standard deviation A 25.00% 11.50% 23.00% B 25.00% 14.00% 43.00% C 25.00% 18.00% 58.00% F 25.00% 9.90% Portfolio expected return 13.4% Variance 6.49% Portfolio standard deviation 25.47% The overall evaluation of portfolio 3, 4 and 5 mainly indicates that the returns provided by portfolio 4 is relatively higher due to the high risk involved in investment. Moreover, the portfolio 5 has the least medium risk, while higher returns from investment. This is mainly due to the non incorporation of risk free assets in the portfolio. The portfolio 4 does not incorporate any of risk free asset in the portfolio, which is directly increasing the SD to 33.96%, while portfolio 5 has a SD of 25.47%. The least SD is mainly portrayed by portfolio 3, where there are only two risky stocks and one risk free asset. This mainly reduces the risk of the portfolio substantially, while the relative return also decreases. Therefore, investors according to their risk taking nature could choose different portfolio to suit their return needs. References: Adamczyk, L., J. K. Adkins, G. Agakishiev, M. M. Aggarwal, Z. Ahammed, I. Alekseev, J. Alford et al. "Beam energy dependence of moments of the net-charge multiplicity distributions in Au+ Au collisions at RHIC." psychology review letters113, no. 9 (2014): 092301. A?t-Sahalia, Yacine, and Felix HA Matthys. "Robust portfolio optimization with jumps." (2015). Bodie, Zvi.Investments. McGraw-Hill, 2013. Cho, Woohyun, Woohyun Cho, Jian-yu Fisher Ke, Jian-yu Fisher Ke, Chaodong Han, and Chaodong Han. "An empirical examination of the direct and indirect effects of geographic diversification on stock market and financial performances of multinational corporations."International Journal of Physical Distribution Logistics Management47, no. 6 (2017): 495-515. Marshall, Cara M. "Isolating the systematic and unsystematic components of a single stocks (or portfolios) standard deviation."Applied Economics 47, no. 1 (2015): Waemustafa, Waeibrorheem, and Suriani Sukri. "Systematic and unsystematic risk determinants of liquidity risk between Islamic and conventional banks." (2016).