Components of a Stock's Realized Return Are Essay

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Components of a stock's realized return are distributions, dividends, bonds, and share price appreciation. Some kinds of stocks also offer income tax write-offs.

The characteristics of a realized return, in short, are the quantity of actual gains that is made on the value of a portfolio over a specific period of time. In other words, how much value one has received in terms of returns / gains as demonstrated in one's portfolio as a whole.

The realized return considers the profitable returns of the each of the assets contained in one's portfolios as well as each of the losses of particular assets incurred during that specific period, as a result of flucturtaitons that occurred to the market of particular assets. These are the components of each of the realized returns associated with each individual asset that is held in the portfolio.

Calculating the rate of return would enable the investor to decide how and how often to diversity his investments and would also inform him regarding the stability of his portfolio. If the rate of return of individuals or particular assets is not as it should be, the investor would be wise to consider making changes in his investments before incurring further losses.

Calculating the realized returns will also tell the investor regarding which assets to hold onto a little longer, which to sell, and when acquiring additional shares would be a wise decision (Wise geek.).

Contrast systematic and unsystematic risk.

Systematic risk refers to the risk that effects the whole stock market and can, consequently not be diversified in any which way or reduced. As per example, international / political complications (such as a recession) will affect the stock market as a whole rather than any single stock, and, in the same way, any change in interest will similarly effect the whole market, though some sectors may be more impacted than others. No amount of diversification can reduce this effect or risk from occurring and, therefore, this situation is called non-diversifiable or systematic risk.

Unsystematic risk, on the other hand, refers to the spectrum and factors of variability in the stock or security return that are reducible to characteristics that are unique to that specific company.

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The management of the company, for instance, may be poor, or the company workers may often go on strike; there is risk of product recall, or death or dismissal of key personnel and so forth. When one invests in a specific company, one is taking on all the potential risks, and the consequences of those risks that the company may face. This kind of risk can better be averted and dealt with than the first -- and is, therefore, called unsystematic risk, since the situation exists with only one particular company. In this instance, accordingly, one can decide to invest in more than one company -- diversify one's earnings -- and this type of risk is, therefore, called 'diversifiable risk' (Difference between Systematic and Unsystematic Risk)

One is advised to diversify one's investments in this situation since the result of unsystematic risk is that factors detrimental to the company will cause share prices to drop causing investor to potentially have his entire portfolio wiped out.

Explain why the total risk of a portfolio is not simply equal to the weighted average of the risks of the securities in the portfolio.

Although the total risk of a portfolio is obviously contingent on the risks of the individual assets or investments, it is not equal to the weighted average of the risks of securities in the portfolio (I.e. is usually less than the risk of a single asset) due to the circumstances of unpredictability, in other words that the returns of different assets fluctuate -- are up and down depending on the times and at different times.

Different categories of assets also respond differently in varying economic situations.….....

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