Portfolio Theory: Tutorial 1

This tutorial covers basics of portfolio theory including mean variance boundary, efficient frontier, correlation between assets, and diversification benefits

[@TkBallerSweetboy]

You have explained in less than 10 minutes what my lecturer struggled to explain in 2 hours. Thank you!

[@quinnpisani180]

its true

[@guolunli1908]

This is the most comprehensive and in-depth video on basic portfolio optimization I have ever seen.

[@lalerimo]

My class at HBS is watching this as a supplemental learning case. You rock!

[@fincampuslecturehall4833]

I'm also at HBS though I started making these videos way before coming here :)

[@xavusabuwera8432]

Two days struggling to understand this, but in 10 min got the best I could

[@leahl8240]

can't be more grateful!!!! the video really really helps a lot! it's cool to see you make it this clear and thorough in a simple way

[@Geodesista]

Thanks for explaining these, you've outdone many textbooks! Yes, am an MBA-er :)

[@regularviewer1682]

Fantastic Video... Not too great sound though. A basic microphone would make a massive difference!

[@fincampuslecturehall4833]

I started making these videos with a standard mic that I had. We now have a company that makes videos in soundproof studios with VO specialists.

[@violaye3785]

so clear! you are excellent! thank you very much. why no new video any more, such a pity.

[@goran5564]

Brilliantly condensed lecture. Thank You.

[@ExcelTutorials1]

Thak you for the great knowledge!!!! This video was super helpful!

[@anuradha12able]

Beautifully explained... Thank you so much..it's a great help

[@Its_Lilypad_]

Thank you from the bottom of my heart.

[@Linda-hd8dg]

This is a great overview! Thanks!

[@ikbalenan162]

Simply fantastic lecture...

[@TheWitness1001]

Good job. Now if corr(A,B) is between -1 and 0, where would the portfolio P statistics fall with respect to the efficient frontier. Would it be in the triangle but still to the left of the frontier. min 5:26)

[@Tyokok]

Thanks for the great video! One question: 7:34 your sigma P squared formula only applies situation that N asset has same volatility and all same pair Cov. why?

[@benmbarekmarouane8676]

Thank you sir!

[@MrRaf-zk9ig]

awesome tutorial....

[@elizabethp.kanizin9009]

What is taught in Form 6 Statistics class. 🤔But I can't remember how come I did not sit for my Mechanical Maths paper!

[@gdshetty]

Thanks a lot..!! This was very useful.

[@Kevin_____18]

Is it that simple? I wasted so much of time. Thank you so much!

[@Wacklewis]

Thanks for the video, very helpful. Are correlation and covariance interchangeable in the portfolio risk equation for 2 assets? I am confused at how the equation is simplified when there is a perfect positive correlation.

[@fincampuslecturehall4833]

I wouldn't say they are interchangeable but are certainly related. It's just algebra. Substitute covariance with the correlation times weights that I have given, then use the fact that (a+b)^2 = a^2 + b^2 + 2ab. See if that gets you somewhere...

[@potato8478]

great video, can we get any reference for everything explained?

[@peters972]

An assumption for this to work is that the stdev of past history of the asset will remain similar during the future position, so take care. And for the portfolio, things that seem un-correlated now may become ever so correlated in the future. Have a firm understanding of what the math is telling you, and what it is not.

[@No_BS_policy]

Worst part of this theory is that it flat out assumes that asset returns are gaussian. Taleb has shown that much of modern finance theories are just piece of garbage.

[@jmruiz93]

thank you :)

[@ripmyheadof]

Beautiful

[@DrBre-zk7ge]

Brilliant

[@ngoniwellymugombi7090]

youre brilliant

[@dellfa1413]

Hi when the correlation is equal to 1, how do you eliminate the 2AB(VOLaVOLb) part to get the final portfolio volatity

[@itsmylifebitches]

Thats exactly what im trying to figure at the moment... =(

[@fincampuslecturehall4833]

itsmylifebitches Using the expression (a+b)²=a²+2ab+b² You might want to see this video Simple way to find (a+b)2 = a2 + b2 + 2ab

[@haodongzhu3420]

thanks

[@takiyaazrin7562]

Nice handwriting. Are you using some sort of computer pen rather than a mouse?

[@fincampuslecturehall4833]

+Takiya Azrin Yes, I'm using a tablet and it's pen.

[@suesBackspace]

thank you!!!!

[@ilahaisayeva4738]

Thank you for helpful video. My question is the Global Minimum Variance and Minimum variance set same concept?

[@fincampuslecturehall4833]

Ilaha Isayeva I am not sure what minimum variance set is. Try and watch the following 2 videos and you will get an understanding about efficient frontier. kzbin.info/www/bejne/ooGupXxvZcuSqac kzbin.info/www/bejne/sIfWdJqLZ5uIlZo

[@gazda9830]

Fuck this shit bro, imma catch this F

[@PriyanshuMani]

Hi. Is there a derivation of this formula that is used to calculate the vol. of the portfolio. That is how do we know that the variance is an underroot of all that?

[@fincampuslecturehall4833]

Hi Priyanshu, "variance" is NOT an underroot of all that. In fact, by definition, volatility is the square root of variance. In this video, I am just going by the standard definition of variance of a portfolio with 2 assets. Forget portfolio theory for a second and try to compute the following (a+b)^2. Then try to compute (xa+yb)^2. See if you can figure out a pattern.

[@PriyanshuMani]

Thank you! Got your point :)

[@marcosg2201]

I would be grateful if I (you) would chronologically orient the authors who developed or perfected the Markowitz theory. Excuse my English is very bad

[@kaisun2222]

You sound a bit like Teddy Perkins hahahaha. Great content, thanks!!

[@fincampuslecturehall4833]

Appreciate it. A bit of humor is always good.

[@clammusic6617]

plz tell me more about efficient frontier? I could not understand clearly

[@fincampuslecturehall4833]

Think of a universe of financial assets. You choose few of those assets and put them together in a portfolio such that there is no way to increase return without increasing risk or reduce risk without reducing return. That should be your starting point. With that, I would suggest you to watch the video again and let me know if you still have questions. Thanks

[@danishcooper4190]

Any pre requirements to watch this video , like maybe stats or maths ?

[@fincampuslecturehall4833]

Danish Cooper Not really if you know the concept of correlation and basic algebra.