Measuring stand - alone risk using realized ( historical ) data Returns earned over a given time
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Measuring standalone risk using realized historicaldata
Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock.
Consider the case of Falcon Freight Inc. FF:
Five years of realized returns for FF are given in the following table. Remember:
While FF was started years ago, its common stock has been publicly traded for the past years.
The returns on its equity are calculated as arithmetic returns.
The historical returns for FF for to are:
Stock return
Given the preceding data, the average realized return on FFs stock is
The preceding data series represents of FFs historical returns. Based on this conclusion, the standard deviation of FFs historical returns is
If investors expect the average realized return from to on FFs stock to continue into the future, its coefficient of variation CV will be
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