Which of the following factors is NOT a determinant of portfolio risk?

Portfolio risk is affected by various factors, and understanding these determinants is crucial for effective portfolio management. The variance of each security is a key component because it quantifies the individual risk associated with each investment. Additionally, the covariances between securities play a significant role in determining how the securities interact with one another—whether they move in the same direction or opposite directions—thereby impacting the overall portfolio risk through diversification effects.

Portfolio weights are also critical as they represent the proportion of each security within the total portfolio. Changes in these weights can significantly change the overall risk profile of the portfolio, as a larger allocation to more volatile securities increases risk.

However, the inflation rate, while a relevant economic factor that impacts the purchasing power of returns and can affect asset prices over the long term, is not a direct determinant of the risk associated with an individual portfolio. Instead, it is an external factor that influences the economic environment in which the portfolio operates. Therefore, it does not directly contribute to the calculus of portfolio risk as defined by variance and covariance of the assets held within it.