Python for Finance - Second Edition

A 2-stock portfolio

Clearly, a 2-stock portfolio is the simplest one. Let's assume that the weights of those two stocks are w1 and w2. The portfolio returns are given here:

Here, Rp,t, is the portfolio return at time t, w1 (w2) is the weight for stock 1 (2), and R1,t (R2,t) is return at time t for stock 1 (2). When talking about expected return or mean, we have a quite similar formula:

Here, is the mean or expected portfolio returns and is the mean ...