Estimate likely portfolio outcomes with weighted scenarios. Compare gains, losses, and risk quickly. Better return estimates support disciplined financial decisions today.
The expected rate of return is a probability-weighted average of all possible returns.
Expected Return, E(R) = Σ [Pi × Ri]
Where:
Variance = Σ [Pi × (Ri − E(R))²]
Standard Deviation = √Variance
This method helps estimate the most likely average return when multiple market outcomes are possible.
| Scenario | Probability (%) | Return (%) | Weighted Contribution (%) |
|---|---|---|---|
| Bull Market | 30 | 18 | 5.40 |
| Moderate Growth | 25 | 12 | 3.00 |
| Stable Market | 20 | 7 | 1.40 |
| Slowdown | 15 | -4 | -0.60 |
| Recession | 10 | -12 | -1.20 |
| Expected Return | 8.00% | ||
List possible market outcomes, assign a probability to each one, multiply each outcome by its probability, then add the weighted values. The total is the expected market return. This gives a scenario-based average, not a guaranteed result.
Multiply every possible return by its probability and sum the products. For example, a 40% chance of 10% and 60% chance of 4% gives 6.4%. This method works for stocks, portfolios, and market assumptions.
Use separate scenarios for each stock or calculate a weighted average from forecast outcomes. For one stock, multiply each return estimate by its probability. For several stocks, repeat the process individually before comparing their expected returns and risks.
Expected return equals the sum of probability multiplied by return for all scenarios. It is useful for estimating average performance under uncertainty. Investors often pair it with standard deviation because the same expected return can hide very different risk.
It is the probability-weighted average return from all possible outcomes. It estimates the average result you might expect over time, not a promised gain in any single period.
All listed scenarios should represent the full set of possible outcomes. If the probabilities do not total 100%, the weighted average will not represent a complete expectation.
Yes. If loss scenarios have enough weight or size, the overall expected return can fall below zero. That suggests the investment outlook is unfavorable under the assumptions used.
No. Actual return is what really happens. Expected return is a forecast based on assumptions, scenario probabilities, and estimated outcomes before the investment period occurs.
Standard deviation measures how widely scenario returns vary around the expected return. A larger value usually means greater uncertainty and more volatile potential outcomes.
Risk premium equals expected return minus the risk-free rate. It estimates the extra return an investor expects for taking investment risk instead of holding a nearly riskless asset.
Yes. You can treat the whole portfolio as one investment and enter scenario returns for the portfolio. That helps compare mixed holdings under different market conditions.
It helps you compare possible investment outcomes before committing money. By linking returns with probabilities, it supports clearer planning, better assumptions, and more disciplined decisions.
Important Note: All the Calculators listed in this site are for educational purpose only and we do not guarentee the accuracy of results. Please do consult with other sources as well.