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  2. Hi,
    What I understood, the more the possible returns on two investments are -vely correlated the more likely the overall reduction in risk. Is it true?

    If it is true, then if they are +vely correlated what still cause the reduction in overall risk?

    Thanks in advance.

    • You need to watch the remaining lectures on portfolio theory as well, because I explain that it is because the unsystematic risk is being reduced.
      In practice investments are positively correlated due to the systematic risk, but it is by creating a portfolio that the unsystematic risk can be removed.

    • I assume you have downloaded the lecture notes (otherwise there is no point in watching the lecture)?
      Tha last line of the question says “the new investment will comprise 20% of his enlarged portfolio” (so the other 80% must be in the existing portfolio).

      Do appreciate (as is written in the introduction to the chapter) that you cannot be asked for calculations on portfolio theory but you are expected to understand the idea. The lecture and chapter show calculations because that makes it easier to understand, but you will not have to do them in the exam.

    • The notes are all up to date, but some of the chapter numbers against the lectures are wrong. I will have it corrected, but in the meantime you can tell from the title of the lecture which chapter of the lectures notes it is.

      There is no lecture on the Macauley duration. I will record one when I have the time.

      • Thank you for taking the time. Gearing up for the repeats in sept . First time using this resource . Have to say it’s great . Please keep up the good work.

      • Thanks.
        What you might find useful as well is that under the heading ‘revision kit live’ on the main P4 page, there are lectures working through three recent question 1’s from past papers (and I will add the one from June soon also).
        It might be helpful for you with regard to the approach as well as the actual technical content.

      • Dear John Moffat,
        I would like to thank you for all the lectures and state that your notes and lectures are valuable.
        Could you please advise if you had time to upload lectures for Chapter 8 “Valuation of Finance, and the Macaulay duration and the modified duration”?
        Thank you in advance with best regards

    • Its a measure of the riskiness – the greater the figure the more risky.

      However do appreciate (as it says in the lecture notes) that these calculations can no longer be asked in the exam. You are only expected to understand the idea of portfolio theory without calculations.

      I have left the lectures because I think the idea makes more sense if you have seen a few numbers.

    • It is no longer the case. The reason is that (as you will have read in the Lecture Notes that go with the lecture) the examiner has said that he will no longer ask for calculations on portfolio theory.

      The only reason that I have left the lecture in, is that he has said that he does expect you to understand the ideas in portfolio theory. I think the best way of understanding is to see the examples, even though (again) you will not be expected to do calculations in the exams.

    • As it says in the Lecture Notes that go with the lectures, you are expected to understand and explain portfolio theory but you will not be asked calculations. The calculations are in the lecture just to make sense of the discussion.

      ( We do not have lectures on this website that are not relevant to the next exam )

      • Ooops – I mistyped my previous reply (and I have now corrected it!!!)

        All our lectures for all papers are relevant for the next exams (otherwise we would remove them) and where relevant we add more lectures (as I have done recently for P4).

  11. If i were to rank a list of my best lecturers in my entire study course, i will definitely list Mr John Moffat the top, the video lecturers are straight to the point and simplified that it makes it easier for understanding. I really appreciate the entire team of open tuition taking all the effort,time and commitment to give this kind of opportunity free of charge accessible to any students globally.

    • Yes it is possible. The example is simply to show that is is possible to mix two investments and end up with lower risk than either (but that is not always going to be the case 馃檪 )

      Do remember that you can not be asked portfolio calculations – you can only be asked to explain the principles. I only go through the examples to (hopefully) make the idea more clear.

    • If you read the last paragraph of the introduction to the chapter in the Course Notes, I make it clear that you are now only expected to know the principles involved and will not be required to use the formulae.
      As I explain in the note, I have left the examples in the notes just to help make the principles clear.

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