Consider a portfolio consisting of three assets with the following expected returns and standard deviations: Asset A: Expected Return = 8%, Standard Deviation = 10% Asset B: Expected Return = 10%, Standard Deviation = 15% Asset C: Expected Return = 12%, Standard Deviation = 20% The correlation coefficients between the returns of the assets are: Correlation between A and B: 0.1 Correlation between A and C: 0.3 Correlation between B and C: 0.5 If an investor is considering the overall risk of the portfolio formed by these three assets, which of the following measures of risk will provide a comprehensive assessment by taking into account the variances and covariances among the assets?

Exam

CFA Level 1

Section

Difficulty

Portfolio Management

Comprehensive Risk Measurement for a Portfolio

Hard Portfolio Risk And Return Risk Measures

Consider a portfolio consisting of three assets with the following expected returns and standard deviations:

Asset A: Expected Return = 8%, Standard Deviation = 10%

Asset B: Expected Return = 10%, Standard Deviation = 15%

Asset C: Expected Return = 12%, Standard Deviation = 20%

The correlation coefficients between the returns of the assets are:

Correlation between A and B: 0.1
Correlation between A and C: 0.3
Correlation between B and C: 0.5

If an investor is considering the overall risk of the portfolio formed by these three assets, which of the following measures of risk will provide a comprehensive assessment by taking into account the variances and covariances among the assets?

Standard Deviation of Portfolio Returns

Value at Risk (VaR)

Beta of the Portfolio

Hint

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