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Expected Return Calculator

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Expected Return Calculator

Calculate the expected return of an investment portfolio based on economic scenario probabilities or weighted asset class allocations.

Scenario Probabilities
Portfolio Allocations
Economic Scenarios
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Sum of Probabilities/Weights: 0%
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Expected Portfolio Return
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Define scenarios or allocations on the left to calculate expected return.

*Statistical weighted average based on historical weights or scenario limits.
Risk Statistics
Portfolio Variance (Volatility2): —
Standard Deviation (Risk Volatility): —
Scenario Yield Spread
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Understanding Expected Return

The Expected Return is the statistical weighted average of all possible return values. It outlines what a portfolio or security is projected to earn on average over a series of varying market climates or asset distributions.

The Primary Calculation Methods

1. Economic Scenario Analysis

We weight the return rate of each possible market state (recession, boom) by its corresponding likelihood:

E(R) = Σ [ Probabilityi × Returni ]
2. Portfolio Asset Allocations

For multiple asset classes, the expected return is the sum of the weighted expected returns of each asset:

E(Rportfolio) = Σ [ Asset Weighti × Expected Returni ]

Measuring Portfolio Volatility (Risk)

Expected return alone is only half the picture; investors must evaluate the volatility risk. We compute this using the Variance and Standard Deviation of scenario returns:

Variance (σ2) = Σ [ Probabilityi × ( Returni – E(R) )2 ]

A higher Standard Deviation indicates greater uncertainty and wider return variations around the average target.