How would you find ex-ante risk of an asset, and how would you find the risk of a portfolio?
An example of ex-ante analysis is when an investment company values a stock ex-ante and then compares the predicted results to the actual movement of the stock’s price.
In Latin it means “before the event”.
It is a term that refers to future events, such as future returns or prospects of a company. Using ex-ante analysis helps to give an idea of future movements in price or the future impact of a newly implemented policy. Risk of a portfolio is measured by using portfolio variance.
Portfolio variance looks at the covariance or correlation coefficient for the securities in the portfolio. Portfolio variance is calculated by multiplying the squared weight of each security by its corresponding variance and adding two times the weighted average weight multiplied by the covariance of all individual security pairs. Thus, we get the following formula to calculate portfolio variance in a simple two-asset portfolio:
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