Portfolio Risk Lab
Apply the complete Module 5 toolkit — return, volatility, correlation, beta, diversification — to a realistic portfolio decision for Cedar Ridge Education Reserve.
- Inspect fictional return data
- Calculate return, volatility, correlation, and beta
- Compare two proposed portfolios
- Stress-test idiosyncratic and systematic risks
- Write a defensible analyst recommendation
Cedar Ridge Education Reserve
Cedar Ridge has asked you to evaluate two proposed portfolios built from three fictional securities. Your recommendation must satisfy the mandate below — the rules Cedar Ridge requires the portfolio to follow — and acknowledge the limits of the evidence.
- Average monthly return ≥ 0.80% in the sample
- Estimated portfolio beta ≤ 1.00
- Avoid excessive concentration
- Prefer meaningful diversification
- Explain limitations of the 8-observation sample
Fictional monthly returns
Three fictional companies plus a market index, observed over eight months. All figures are illustrative.
| Month | Market | Atlas | Nova | Meridian |
|---|---|---|---|---|
| 1 | 2.0 | 1.2 | 4.0 | 2.0 |
| 2 | -1.0 | -0.4 | -3.0 | 1.0 |
| 3 | 3.0 | 1.8 | 6.0 | -1.0 |
| 4 | -2.0 | -0.8 | -5.0 | 0.0 |
| 5 | 4.0 | 2.1 | 7.0 | 3.0 |
| 6 | -3.0 | -1.0 | -6.0 | -1.0 |
| 7 | 1.0 | 0.7 | 2.0 | 2.0 |
| 8 | 2.0 | 1.1 | 3.0 | 1.0 |
Fictional monthly returns created for the OPS Portfolio Risk Lab.
Eight-round portfolio investigation
Work through the rounds in order. Completing a round unlocks the next.
Before computing anything, inspect the fictional return table. Form a visual hypothesis — then confirm or reject it with numbers in later rounds.
| Month | Market | Atlas | Nova | Meridian |
|---|---|---|---|---|
| 1 | 2.0 | 1.2 | 4.0 | 2.0 |
| 2 | -1.0 | -0.4 | -3.0 | 1.0 |
| 3 | 3.0 | 1.8 | 6.0 | -1.0 |
| 4 | -2.0 | -0.8 | -5.0 | 0.0 |
| 5 | 4.0 | 2.1 | 7.0 | 3.0 |
| 6 | -3.0 | -1.0 | -6.0 | -1.0 |
| 7 | 1.0 | 0.7 | 2.0 | 2.0 |
| 8 | 2.0 | 1.1 | 3.0 | 1.0 |
Fictional monthly returns created for the OPS Portfolio Risk Lab.
Which stock has the largest apparent swings?
Which pair appears to move together most closely?
Which stock appears most different from the other two?
Why are visual impressions insufficient?
Answer all four questions to continue.
Connecting the full risk-and-return chain
Frequently asked
Answer all questions, then check your work. You can retry any time — mastery is based on correctness, not speed.
- 01
Portfolio A beta ≈ ?
- 02
Portfolio B beta ≈ ?
- 03
Which portfolio satisfies the beta ≤ 1.00 mandate?
- 04
Nova falls 40%. What is the approximate impact on Portfolio A?
- 05
Atlas–Nova correlation ≈ ?
- 06
Why does Meridian provide more diversification than simply adding more Atlas?
- 1Portfolio return is a weighted average of asset returns.
- 2Portfolio volatility depends on correlations, not just individual volatilities.
- 3Beta measures market exposure; beta ≠ total risk.
- 4Lower correlation creates more diversification benefit.
- 5Portfolio A (concentrated) violates the beta ≤ 1.00 mandate.
- 6Portfolio B (diversified) satisfies the return, beta, and diversification criteria.
- 7Stress tests show both idiosyncratic and systematic risk matter.
- 8Eight observations cannot establish stable long-run parameters.
- 9A defensible recommendation requires evidence, comparison, risk analysis, and stated limitations.