Simple Standard Deviation of Returns
I know this isnt 100% (no pun intended), but I just want to make sure I am atleast looking at these numbers somewhat correctly.
If you wanted to determine the probability of returns for a portfolio using the expected return, standard deviation of returns and R Squared would it simply be
Expected return +/- 1STD = 68% probability
Expected return +/- 2STD = 95% probability
Expected return +/- 3STD = 99.7% probability
then use R squared somewhat like an additional error estimate like if R Squared is 99 then there is a 99%ish chance that the above probabilities are correct?
using actual numbers: Expected return is 11%, STD = 8% so
68% chance for 3% to 19%
95% chance for -5% to 27%
99.7% chance for -13% to 35%
Any clarification if I am wrong would be much appreciated!