# Stocks and expected versus realized returns

You expect to invest your funds equally in four stocks with the following expected returns:

STOCK A 16%

STOCK B 14

STOCK C 10

STOCK D 8

At the end of the year, each stock had the following realized returns:

STOCK A -6%

STOCK B 18

STOCK C 3

STOCK D -22

Compare the portfolio's expected and realized returns:

https://brainmass.com/statistics/central-tendency/stocks-expected-versus-realized-returns-515064

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The expected return of the portfolio is the weighted averages of the individual funds returns:

(1.1)

Where is the proportion of the portfolio of fund i with return

Needless to say that

(1.2)

When all funds are distributed equally, that is:

(1.3)

Equation (1.1) becomes the standard average:

(1.4)

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In our case we have three funds with expected returns:

(1.5)

If equal amount is invested in all funds then

And the expected return is:

(1.6)

The actual returns were:

(1.7)

Thus, the realized returns are:

(1.8)

So from expected gain of 12%, the portfolio actual return was a loss of 1.75%

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