Stock Market Math by Brian Wan https://padlet.com/fathomtrawl3/2m8uzwchfds1 A Brief Introduction en-us 2017-01-12 01:58:47 UTC 2026-02-25 21:54:33 UTC hello@padlet.com https://padlet-assets.s3.amazonaws.com/icons/Thunder.png Beginnings fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146702292 The first major stock exchange, the New York Stock Exchange, was created in 1792 by 24 supply brokers. During this time, America had just recently declared independence and were trying to build up themselves economically. It wasn't uncommon for groups to pool their savings together to start new businesses, and the stock exchange facilitated the growth of these companies.]]> 2017-01-12 07:21:01 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146702292 Modern Day fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146705833 Today, most people invest a large sum of their money into the stock market to reach a certain goal, whether it be saving for retirement, buying something expensive, or for another reason. People employ strategies from their gut feelings to mathematical models in order to try to maximize profits and minimize losses.]]> 2017-01-12 07:41:14 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146705833 Relation to Math fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146708918 At the most basic level, optimizing asset allocation requires finding which portfolio, or group of assets, has the highest expected return for a certain degree of risk. Finding the optimal portfolio requires calculations based on the input of both expected returns and risk. 
Expected return and risk inputs are based on historical data. ]]> 2017-01-12 08:00:14 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146708918 Modern Portfolio Theory fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146718196 Harry Markowitz, an economist, introduced this theory in 1952. Also known as mean-variance-analysis, the modern portfolio theory defines the mathematical framework that can be used to find optimal asset allocations given the expected return (mean) and risk (variance) of each asset. Furthermore, the level of correlation between stocks (defined as covariance) is used to find the overall risk of a portfolio to fully analyze the portfolio.]]> 2017-01-12 08:51:18 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146718196 Efficient Frontier fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146736654 www.investopedia.com]]> 2017-01-12 10:35:11 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146736654 Dow Jones Industrial Average (1929 - 2005) fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146740983 www.finance.yahoo.com]]> 2017-01-12 11:01:42 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146740983 Basic Formulas for a Two-Asset Portfolio fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146743425 ExpectedReturn(Portfolio) = weight(1)*ExpectedReturn(1) + weight(2)*ExpectedReturn(2)

Variance(Portfolio) = weight(1)^2 * StD(1)^2 + weight(2)^2 * StD(2)^2 + 2(weight(1)*weight(2)*Covariance(1,2)*StD(1)*StD(2))

StD^2 = Variance

]]> 2017-01-12 11:18:12 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146743425 Single-Period, Two-Asset Portfolio Example fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146744927                        Amount        Expected Returns        StD
Stock A         $30,000                      15%                   5%

Stock B         $40,000                      25%                   20%

Correlation/Covariance(A, B) = 0.30

Find the expected return and variance of the portfolio. Then, find the standard deviation of the portfolio.]]> 2017-01-12 11:29:56 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146744927 New York Stock Exchange fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146745382 www.mikepeel.net]]> 2017-01-12 11:33:18 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146745382 Example Work fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146788892 Weight(A) = 30,000/70,000 = 0.4286
Weight(B) = 40,000/70,000 =  0.5714
ExpectedReturn(Portfolio) = 0.4286*0.15 + 0.5714*0.25 = 0.20714
Variance(Portfolio) = 0.4286^2 * 0.05^2 + 0.5714^2 * 0.20^2 + 2(0.4286*0.5714*0.30*0.05*0.20) = 0.0150 or 1.5%
StD = sqrt(0.0150) = 0.1225 or 12.25%]]> 2017-01-12 14:32:59 UTC https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146788892 Works Cited fathomtrawl3 https://padlet.com/fathomtrawl3/2m8uzwchfds1/wish/146792804 "Expected Return and Variance for a Two Asset Portfolio." Finance Train. N.p., 15 Apr. 2012. Web.  10 Jan. 2017.

"Expected Return, Variance And Standard Deviation Of A Portfolio." Investopedia. Investopedia, LLC, 03 June 2014. Web. 11 Jan. 2017.

Various Authors. "New York Stock Exchange (NYSE)." Encyclopædia Britannica. Encyclopædia Britannica, Inc., 08 Nov. 2011. Web. 10 Jan. 2017.
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