Calculate The Expected Return For The Two Stocks

Expected Return Formula:

\[ E[R] = \frac{E[R1] + E[R2]}{2} \text{ (equal weighted)} \] \[ E[R] = w1 \times E[R1] + w2 \times E[R2] \text{ (weighted)} \]

Expected Return Stock 1 (E[R1]):

Expected Return Stock 2 (E[R2]):

Calculation Type:

Expected Portfolio Return (E[R]):

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1. What is Expected Return?

The expected return is the profit or loss an investor anticipates on an investment that has known or expected rates of return. For a portfolio with two stocks, it can be calculated as either an equal-weighted or weighted average of the individual expected returns.

2. How Does the Calculator Work?

The calculator uses one of these formulas based on your selection:

\[ E[R] = \frac{E[R1] + E[R2]}{2} \text{ (equal weighted)} \] \[ E[R] = w1 \times E[R1] + w2 \times E[R2] \text{ (weighted)} \]

Where:

\( E[R1] \) — Expected return of stock 1 (%)
\( E[R2] \) — Expected return of stock 2 (%)
\( w1 \) — Weight of stock 1 in portfolio (0-1)
\( w2 \) — Weight of stock 2 in portfolio (0-1), where \( w2 = 1 - w1 \)

3. Importance of Expected Return Calculation

Details: Calculating expected return helps investors assess potential portfolio performance, make asset allocation decisions, and compare different investment opportunities.

4. Using the Calculator

Tips: Enter expected returns for both stocks in percentage. Select whether you want equal-weighted or weighted calculation. If weighted, specify the weight for stock 1 (weight for stock 2 will be automatically calculated as 1 - weight1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between equal and weighted calculation?
A: Equal weighted gives both stocks the same importance (50% each), while weighted allows you to specify different proportions based on your portfolio allocation.

Q2: How do I determine the expected returns for individual stocks?
A: Expected returns can be based on historical performance, analyst estimates, or fundamental analysis models like CAPM.

Q3: Can I use this for more than two stocks?
A: This calculator is designed for two stocks. For more stocks, you would need to extend the formula accordingly.

Q4: What are typical expected return values?
A: Expected returns vary by asset class. Stocks might have expected returns of 5-10%, bonds 2-5%, but this depends on market conditions and risk.

Q5: Does this account for risk?
A: No, this only calculates expected return. For a complete picture, you should also consider portfolio risk (standard deviation) and correlation between assets.