Investment Analysis & Portfolio Management

Variable Notations Cheat Sheet

Symbol What it is What it means

𝑃𝑡 Price Price of a stock at a specific point of time 𝑡

The amount of money you make from an

𝑟𝑗
Return investment in a stock j, expressed in
percentage terms.

The amount of money you expect to make

Expected
𝐸[𝑟𝑗 ] from an investment in a stock j, expressed
Return
in percentage terms.

The probability of a given ‘state’ 𝑖 occurring.

𝑝𝑖 Probability You can think of a ‘state’ as a scenario; e.g.,
recession, boom, stagnation, etc.

The rate of rate you can earn without any

Risk-free risk. Generally, we use the yield of US
𝑟𝑓
rate Treasury Bills or Bonds as a proxy for the
risk-free rate.

The return on the ‘market portfolio’.

Market Practically, this would be the return on a
𝑟𝑚
return stock market index (e.g., S&P500,
FTSE100, NIKKEI, Nifty).

Often also called “sigma squared”, the

variance refers to the risk of a stock.
𝜎2 Variance
Importantly, it is not a percentage nor any
other metric / unit.

Often called “sigma”, the Standard Deviation

Standard
𝜎 represents the total risk of a stock (i.e., the
Deviation
market risk + firm specific risk)
Symbol What it is What it means

Often called “omega”, the weight of a stock

𝜔𝑖 Weight refers to the proportion of funds (money)
invested in a stock i

The market risk (aka Systematic Risk) of a

𝛽𝑗 Beta
stock j.

The intercept term, which represents the

expected return on a stock when the market
𝛼𝑗 Alpha
return is 0; or, the return on a stock that’s
over and above what it is expected to earn.

Think of an Excel® column with individual

asset returns stacked one below the other.
Vector of 𝑟1
𝑹
Returns
𝑹=[⋮]
𝑟𝑘

Think of an Excel® column with individual

weights stacked one below the other.
Vector of 𝜔1
𝜴
Weights
𝜴=[ ⋮ ]
𝜔𝑘

The Variance-Covariance Matrix (aka,

Covariance Matrix).

∑ VCV Matrix 𝜎12 ⋯ 𝜎1,𝑘

∑=( ⋮ ⋱ ⋮ )
𝜎1,𝑘 ⋯ 𝜎𝑘2