Beruflich Dokumente
Kultur Dokumente
Alternative Approaches to
Valuation and Investment
Measuring Stand-Alone Risk
(Just the same old standard deviations)
Presenter: Sean Pinder
Defining risk
Common perceptions of risk:
Extend line to match
sub heading length,
or delete if no sub
header is used.
Return
Achieved
Project
One
Project
Two
Project
Three
-40%
0%
0%
2%
-30%
0%
0%
3%
-20%
0%
0%
5%
-10%
0%
10%
10%
0%
20%
20%
15%
10%
60%
40%
30%
20%
20%
20%
15%
30%
0%
10%
10%
40%
0%
0%
5%
50%
0%
0%
3%
60%
0%
0%
2%
Return
Achieved (1)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Total
Project
One (2)
0%
0%
0%
0%
20%
60%
20%
0%
0%
0%
0%
(1) (2)
Project
Three (2)
2%
3%
5%
10%
15%
30%
15%
10%
5%
3%
2%
(1) (2)
0%
0%
0%
0%
0%
6%
4%
0%
0%
0%
0%
10%
Return
Achieved (1)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Total
Project
Two (2)
0%
0%
0%
10%
20%
40%
20%
10%
0%
0%
0%
(1) (2)
0%
0%
0%
-1%
0%
4%
4%
3%
0%
0%
0%
10%
Return
Achieved (1)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Total
-0.8%
-0.9%
-1%
-1%
0%
3%
3%
3%
2%
1.5%
1.2%
10%
Return
Achieved (1)
Prob.
(2)
E(R)
(3)
[(1)-(3)]2(2)
(4)*
-40%
-30%
0%
0%
10%
10%
0
0
-20%
-10%
0%
0%
0%
20%
10%
10%
10%
0
0
0.002
10%
20%
60%
20%
10%
10%
0
0.002
30%
40%
50%
0%
0%
0%
10%
10%
10%
0
0
0
60%
Variance (2)
Standard
deviation ()
0%
10%
Total
Square
root
0
0.004
6.32%
* Units of measurement in the fourth column are in percentage squared (%2) except for the final row
Return
Achieved (1)
Prob.
(2)
E(R)
(3)
[(1)-(3)]2(2)
(4)*
Return
Achieved (1)
Prob.
(2)
E(R)
(3)
-40%
0%
10%
-40%
2%
10%
0.005
-30%
-20%
0%
0%
10%
10%
0
0
-30%
-20%
3%
5%
10%
10%
0.0048
0.0045
-10%
0%
10%
20%
10%
20%
40%
20%
10%
10%
10%
10%
0.004
0.002
0
0.002
-10%
0%
10%
20%
10%
15%
30%
15%
10%
10%
10%
10%
0.0040
0.0015
0
0.0015
30%
40%
10%
0%
10%
10%
0.004
0
30%
40%
10%
5%
10%
10%
0.0040
0.0045
50%
60%
Total
0%
0%
10%
10%
0
0
0.012
50%
60%
Total
3%
2%
10%
10%
0.0048
0.0050
0.0396
10.95%
Square root
Square root
* Units of measurement in the fourth column in each table are in percentage squared
(%2) except for the final row
E(R1) = 10%
1 =6.32%
E(R2) = 10%
2 =10.95%
E(R3) = 10%
3 =19.9%
[(1)-(3)]2(2)
(4)*
19.90
$57.92 $58.14
= 0.00378 = 0.378%
$58.14
E(RKelloggs)
=0.047%
E(RS&P500)
=0.049%
E(RFacebook)
=0.166%
E(RTripAdvisor)
=0.003%
Kelloggs
=17.14%
S&P500
=11.33%
Facebook
=35.69%
Trip Advisor
=40.80%
Summary
We have defined the concepts of:
Extend line to match
sub heading length,
or delete if no sub
header is used.
Expected return
Standard deviation of return.
We have demonstrated how to measure standard
deviation using either:
Historical returns and probabilities
Historical returns on their own.
Next up we need to turn our attention to how
investors regard risk and return and therefore
how they rank projects with different risk and
return profiles.
Source list
Slide 2:
Worried bride (flic.kr/p/4VZBoz) [CC BY 2.0 (creativecommons.org/licenses/by/2.0/)]
Slides 4, 6 - 12:
Tables and figures created by Sean Pinder The University of Melbourne using fictional data.
Slides 16, 17 and 20:
Figures created by Sean Pinder The University of Melbourne using data sourced from Yahoo!
Finance (June 2015, https://au.finance.yahoo.com)