The portfolio return is calculated for varying time periods using the monthly returns for each holding, weighted appropriately. A portfolio’s expected return is the sum of the weighted average of each asset’s expected return.

There are a few things you need to know-

To calculate the expected return of a portfolio, you need to know the expected return and weight of each asset in a portfolio.

To calculate the expected return of a portfolio, you need to know the expected return and weight of each asset in a portfolio.

Weighted average: In statistics, a weighted average is an average that takes each object and calculates the product of its weight and its figure and sums all of these products to produce one average. It is implied that all the individual weights add to 1.

Once you have understood this, let us get into the method of calculating returns.

This can be explained as-

R = Sum(Pi x Ri)

Where:

R = Portfolio return for month

Pi = % weightage of holding i in portfolio

Ri = % return on holding i for month

Let me use an example for explaining this formula-

Let's say we have a portfolio with 3 securities, where returns are available for the month J for all securities:

Since the return of a portfolio is commensurate with the returns of its individual assets, the return of a portfolio is the weighted average of the returns of its component assets.

Khushi Patelanswered.