• Expected Return – The return expected on an investment (an asset or a portfolio) based on a probability distribution, taking into account all possible return scenarios.
• Return Volatility – Represents the variability or uncertainty of an asset’s return; it is measured by a value called standard deviation.

• "Red" Zone = The asset’s actual return has approximately 68% probability of falling within this zone (i.e. within 1 standard deviation of the asset’s expected return).
• "Red+Green" Zone = The asset’s actual return has approximately 95% probability of falling within this zone (i.e. within 2 standard deviations of the asset’s expected return).
• "Red+Green+Blue" Zone = The asset’s actual return has approximately 99% probability of falling within this zone (i.e. within 3 standard deviations of the asset’s expected return).

• Asset A has a 68% probability of achieving an actual return between 7% and 37% (i.e. one standard deviation below and above expected return – On the graph, this range is represented the red area).
• Asset A has a 95% probability of achieving an actual return between -8% and 52% (i.e. two standard deviations below and above expected return – On the graph, this range is represented the red+green area).
• Asset A has a 99% probability of achieving an actual return between -23% and 67% (i.e. three standard deviations below and above expected return – On the graph, this range is represented the red+green+blue area).

The important point here is that return volatility (standard deviation) can have a tremendous impact on actual return. The oft-quoted cliché says, “High risk, high reward”, but that’s only half of the story. With an understanding of return volatility, it's clear that the cliché fails to mention that high risk also means the potential for great loss. 

• Portfolio Asset Selection
• Portfolio Optimization 
• Asset Correlation
• Efficient Frontier