When Constructing a Portfolio, Standard Deviations, Expected Returns, and Correlation

question 36

Essay

When constructing a portfolio, standard deviations, expected returns, and correlation coefficients are typically calculated from historical data. Why may that be a problem?

---

Definitions:

Frequency Table

A table that displays the frequencies of different data categories, showing how often each category occurs in the dataset.

Mound-Shaped Distribution

Another term for a normal distribution, characterized by its bell-shaped curve that is symmetrical around the mean.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how much the values in the set differ from the mean.

Mean Sales

The average revenue from sales over a specific period of time.