Expected and Actual Returns Based on Historical Data

Time MLCF Returns

0 30
1 35 16.67%
2 45 28.57%
3 51 13.33%
4 73 43.14%
5 77 5.48%
6 80 3.90%
7 76 -5.00%
8 60 -21.05%
9 69 15.00%
10 78 13.04%
here 11 80 2.56%
12 10.51%
RISK SD 16.05%

LB
Mean - Sigma Mean + Sigma CI 1 -5.53%
Mean-2Sigma Mean+2Sigma CI 2 -21.58%
CI 3 -37.62%
U-3Sigma

Opportunity
Danger

Mean+-SD
 GM Through Log Returns

1+Returns Log Returns

116.67% 15.42% Time

128.57% 25.13% 0
113.33% 12.52% 1
143.14% 35.86% 2
105.48% 5.33%
103.90% 3.82%
95.00% -5.13% GM Returns tell us the
78.95% -23.64% GM Returns will be less
115.00% 13.98%
113.04% 12.26%
102.56% 2.53%
AM=EXpRe 9.3262% Growth = GM Return 8.916629573% 9.3262% GM

UB
26.56% 68 34 AM r 10.51% GM
42.60% 27 13.5
58.65% 5 2.5 FV=PV(1+r)^n FV=PV(1+r)^n
U+3Sigma
PV 30 PV
n 11 n
r 10.51% >>>>> r

FV 90.085175767 FV
 Value R 1+R
200
100 -50% 50%
200 100% 200%
25% 0.0%

GM Returns tell us the Growth Rate in your Wealth

GM Returns will be less than AM Return

9.33%

FV=PV(1+r)^n

30
11
9.33%

80
 A-F AM has a special power
X Dev Dev Sq It is the only number that can MINIMIZE
2 -3.50 12.25 ERRORS: SUM of SQUARED DEVIATION
4 -1.50 2.25
6 0.50 0.25 Only AM can Minimize the total magnit
8 2.50 6.25 Minimizes SSE
10 4.50 20.25
Represent AM 5.50 2.50 41.25 Total Magnitude of My Errors

(x-Xbar)^2

X Error E^2
2 -4.000 16
4 -2.000 4
6 0.000 0
8 2.000 4
10 4.000 16
6.000 40

Minimizes the magnitude of Errors

 special power
nly number that can MINIMIZE the ERRORS
SUM of SQUARED DEVIATION

can Minimize the total magnitude of errors

 Time R (Unfiltered) Time R (Filtered)
0 -10% 0
1 15% 1 15%
2 15% 2 15%
3 12% 3 12%
4 15% 4 15%
5 15% 5 15%
6 15% 6 15%
7 15% 7 15%
8 17% 8 17%
9 15% 9 15%
10 15% 10 15%
11 15% 11 15%
12 40% 12
Mean 15% Mean 15% -0.2 -0.1
SD 10% SD 1%

SD
R (Unfiltered)
R (Filtered)

SD IncremeProb Ret Prob SD IncremeProb Ret

-3 8.42453E-222 -15% 0.0449643297 0 -3 0 12%
-2.5 5.36791E-157 -10% 0.1778373739 0 -2.5 0 12%
-2 2.28009E-103 -5% 0.5477776754 1 -2 0 13%
-1.5 6.456343E-61 0% 1.3140503321 1 -1.5 0 13%
-1 1.218732E-29 5% 2.4549692207 2 -1 0 14%
-0.5 1.533617E-09 10% 3.5719591393 4 -0.5 0 14%
0 1.2865100993 15% 4.0475599731 4 0 2.732978E-40 15%
0.5 0.0071944341 20% 3.5719591393 4 0.5 5.25525E-227 15%
1 2.682053E-16 25% 2.4549692207 2 1 0 16%
1.5 6.665387E-41 30% 1.3140503321 1 1.5 0 17%
2 1.104258E-76 35% 0.5477776754 1 2 0 17%
2.5 1.21956E-123 40% 0.1778373739 0 2.5 0 18%
3 8.9789E-182 44% 0.0449643297 0 3 0 18%
 40

[X VALUE]
35

30

25

20

15

[X VALUE]
10

0
-0.2 -0.1 0 0.1 0.2 0.3

Filtered Unfiltered

-3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5

-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
12% 12% 13% 13% 14% 14% 15% 15% 16% 17%

Prob
0.409104
1.618037
4.983903
11.95576
22.33631
32.49913
36.82634
32.49913
22.33631
11.95576
4.983903
1.618037
0.409104
0.3 0.4 0.5

2 2.5 3
35% 40% 44%
17% 18% 18%
 AM of Ret SD of Ret Return/Risk Standardization Measure
Exp Return Exp Risk Sharpe Ratio Version 1 CV=Coefficient of Variation=sigma/mu=
Asset A 12.0% 6.0% 2.0000 0.50
Asset B 20.0% 13.0% 1.5385 0.65
Maximize Return
Minimize Risk Return/Risk Risk/Return
Asset A is expected to give you 0.6667 u
Asset A is expected to give you 1.5 units of Returns against against 1 unit of Return
1 unit of Risk
Asset B is expected to give you 0.85 unit
Asset B is expected to give you 1.17 units of Returns against against 1 unit of Return
1 unit of Risk
Criteria of CV
2 Litre Lower the Better

1Lit Milk 140 140 280

2 Lit Milk 300 150 300
rdization Measure
efficient of Variation=sigma/mu= SD/Mean=Risk/Return
Risk/Return 0.6666/1
Risk/Return 0.85/1

is expected to give you 0.6667 units of Risk

1 unit of Return

is expected to give you 0.85 units of Risk

1 unit of Return
 sum (W x ER) W= Ind Investment / Total Investment

P(t) P(t+1) Individual Attractiveness

Stock Price 1 Price 2 Number E.R
A 10 12 100000 20%
B 20 21 200000 5%
C 30 33 500000 10%

P(t) P(t+1) Evaluate at Initial Price

Stock Price 1 Price 2 Number Initial Value of PF
A 10 12 100000 1000000
B 20 21 200000 4000000
C 30 33 500000 15000000
as if it is a single asset 20000000
V1
nt / Total Investment

Allocation Strategy
Investment W W.ER
1000000 0.05 0.01
4000000 0.2 0.01
15000000 0.75 0.075
20000000 1 9.50% 9.50%

Evaluate at Final Price

Final Value of PF
1200000
4200000
16500000
21900000 9.50%
V2
 SD= Under root (Sum (P x (Dev)^2))
Probabilistic or Projected Data
E.(R)= Sum P x R

Scenario Prob Ra(Atlas Honda) Rb(PPL) PxDev^2 (AH)

1 Good 0.6 30% 15% 0.006
2 Normal 0.2 20% 17% 0
3 Bad 0.2 -10% 19% 0.018
E.(R) 20.0% 16.2% 15.5%

CV 0.7745966692415 0.098765432
Lower the Better Risk/Ret Risk/Ret

Sharpe Ratio V1 1.2909944487358 10.125

Higher the Better Ret/Risk Ret/Risk

1.2909944487358 10.125

Time Stock A
0 118.002385201
1 105.904751947
2 93.0403334478
3 87.8649878494
4 105.588097831
5 87.5890366851
6 102.619970317
7 57.0859135304
8 71.4452330979
Under root (Sum (P x (Dev)^2))

PxDev^2 (PPL)
8.64E-05 -0.00072
0.0000128 0
0.0001568 -0.00168
1.60% -0.0024 COVAR
-0.968245836552 Correlation

Stock B R_A R_B Covar

104.64237567
74.474533838 -10.3% -28.8% 0.0216263814667
66.073886989 -12.1% -11.3% 0.0121566548221
89.738684187 -5.6% 35.8% -0.007319123954
87.441117444 20.2% -2.6% -0.012043430312
79.702819487 -17.0% -8.8% 0.015610420513
74.338242149 17.2% -6.7% -0.019061728603
68.087901834 -44.4% -8.4% 0.0449690397233
103.01849721 25.2% 51.3% 0.1389987805179

E.R -3.4% 2.6%

E.Risk 21.8% 25.1%
Covar 0.024367124272 0.0243671242718
Correlation 0.447037994097 0.4470379940967
Scaling up or Scaling Down of Returns
Time (Months) Price HPRs
0 35
1 50 42.86%
2 40 -20.00%
3 75 87.50%
36.79% Average Monthly Returns
From Monthly From Monthly
to Scaling Up of Returns to Scaling Down
Case 1: Yearly Case 1: Weekly
AW 441.4% AW 9.196%
GW 4190.3% GW 8.15%
to to
Case2: Quarterly Case2: Daily 22
AW 110.4% AW 1.672%
GW 155.93% GW 1.434%

Arithmatic way
Year Price HPRs
0 35
1 50 42.86%
2 40 -20.00%
3 75 87.50%
4 82 9.33%
29.92% 119.69%
29.92%

Month Price HPRs

0 35
1 50 42.86%
2 40 -20.00%
3 75 87.50%
4 82 9.33%
29.92% Avg Monthly Return

Annualized Return 359.1%

 ScalingUp
AW Mulitiply with n
GW Take power of n

Geometric way
1+R

142.86%
80.00%
187.50%
109.33%
cumulative return of 4 years 23.719015% 234.286%
Avg. Yearly Return 1.23719014526484
23.719%

1+HPR

142.86%
80.00%
187.50%
109.33%
23.719014526484300% Avg Monthly Return

1185.990%

2.34285714285714 cumalative returns of 4 months

1.23719014526484
 23.719015% Avg Monthly Returns

Annualized Returns 1185.990%

ScalingDown
Divide by n
Take power of (1/n)

cumulative return of 4 years

MWROR and TWROR

Time Cash Flows

0 -200
1 -220
2 480

IRR 9.39% per annumMoney Weighted Rate of Return

Time Value HPR

0 200
HPR1 1 230 15.0% 115.0%
Withdrawal -5
Addition 225
HPR 2 1 450
2 480 6.67% 106.67% 10.833%
Cumulative Returns of Two years 122.67%
10.75% Time weighted Rate of Return
10.75% Time weighted Rate of Return as GM

TW ROR
1 Overall holding period should be divided into sub holding periods based on addition or withdr
2 Return for each sub holding period
3 Geometrically link each sub holding period returns so that you get ANNUALIZED Returns since
ate of Return

AM

Time weighted Rate of Return

Time weighted Rate of Return as GM

ding periods based on addition or withdrawals in/from your PF

that you get ANNUALIZED Returns since TWROR must be in an annualized form
Asset P1 P2 P3
Alpha $ 118 $ 110 $ 135
Beta $ 93 $ 107 $ 110
Gamma $ 109 $ 100 $ 105
Portfolio $ 320 $ 317 $ 350

Dicrete Returns: Portfolio Additive Not Time Additive Log Returns:

Asset Weights HPR1 HPR2 HPR 1-2 HPR1 + HPR2 Asset Weights
Alpha 0.36875 -6.8% 22.7% 14.4% 15.9% Alpha 0.36875
Beta 0.290625 15.1% 2.8% 18.3% 17.9% Beta 0.290625
Gamma 0.340625 -8.3% 5.0% -3.7% -3.3% Gamma 0.340625
Portfolio 1 -0.94% 10.41% 9.38% Portfolio 1
Portfolio -0.94% 10.90% 9.38% Portfolio

=D5/C5-1
DR P2/P1-1

LR ln(P2/P1)

Not Portfolio AdditiveTime Additive

HPR1 HPR2 HPR 1-2 HPR1 + HPR2

-7.0% 20.5% 13.5% 13.5%
14.0% 2.8% 16.8% 16.8%
-8.6% 4.9% -3.7% -3.7%
-0.94% 9.90% 8.96%
-1.45% 10.02% 8.57%

=LN(D5/C5)
int rate 100% int rate 100% int rate 100% int rate
time years 1 time years 1 time years 1 time years
principal 1 principal 1 principal 1 principal
freq 1 freq 2 freq - com 4 freq - com
time perio 1 time perio 2 time perio 4 time perio
period rate 100% period rate 50% period rate 25% period rate

FV 2 2.2500 2.4414
 100% int rate 100%
1 time years 1
1 principal 1
365 freq - com 100000000
365 time perio 100000000
0% period rate 0%

2.7146 2.7183
Euler's number
 Scenario Prob Ra (Honda) Rb (EngroFood) Dev
Good 0.6 20.0% 0.15 6%
Normal 0.3 10.0% 0.17 -4%
Bad 0.1 -10.0% 0.19 -24%
14% 16%

Variance Avg Squared Deviation

Dev Sq P x Dev Sq Dev Dev Sq P x Dev Sq DevA x DevB P x DevA*DevB
0.3600% 0.00216 -0.01 0.0001 6E-05 -0.0006 -0.00036
0.1600% 0.00048 0.01 1E-04 3E-05 -0.0004 -0.00012
5.7600% 0.00576 0.03 0.0009 9E-05 -0.0072 -0.00072
variance 0.0084 0.00018 -0.0012
SD 9.17% 1.34%
9.17%
Corr -0.9759
Rate 0.01
Frequency 12
APR 0.12

EAY 0.126825
APR 0.12