Page 63 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management Mahesh Kumar Sarva, Lovely Professional University

Notes Unit 2: Risk and Return

CONTENTS
Objectives
Introduction
2.1 Risk Defined
2.1.1 Systematic versus Non-systematic Risk
2.1.2 Measurement of Risk

2.2 Risk and Expected Return
2.3 Risk-Return Relationship
2.4 Portfolio and Security Returns
2.5 Return and Risk of Portfolio
2.6 Portfolio Diversification and Risk
2.7 Summary
2.8 Keywords

2.9 Self Assessment
2.10 Review Questions
2.11 Further Readings

Objectives

After studying this unit, you will be able to:
Discuss the concept of risk
Define systematic risk

Define unsystematic risk
Understand the concept of risk & expected Return
Discuss risk return relationship

Explain portfolio & security returns
Describe return & risk of portfolio
Explain diversification

Introduction

Unlike natural science and like medicine, law and economics, investing lies somewhere between
an art and a science. Certain aspects of investing lend themselves to a scientific approach. The
creation of computer skills has accelerated the use of scientific methods.

However, corporations are managed by people and therefore open to problems associated with
their faulty judgments. Moreover, the corporations operate in a highly dynamic and competitive
environment, and many operate both nationally and internationally. As a result, the judgment
factor still dominates investment decisions.

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