Question

watch these videos early enough to give you time to sove tmese uesio 3.1 Portfolio theory Calculate the standard deviation of Pelle's portfolio, where he has invested 50 % of his money in Axfood and 50 % in Telia Sonera. Assume that the correlation coefficient between the two shares is 0.34 and that the standard deviation of Axfood is 24.24 % while the standard deviation of Telia Sonera is 37.62 %.

hi guys im really lost what do i do here please explain to someone who have almost no clue thanks

Answer 1

Standard deviation of the portfolio = [WA^2*SDA^2+WB^2*SDB^2+2*WA*WB*SDA*SDB*COR(A,B)]^0.5
Where,
WA, WB are the weights of the two securities A & B and SDA and SDB their standard deviations and COR(A,B)
Substituting values we have,
=(0.5^2*24.24^2+0.5^2*37.62^2+2*0.5*0.5*24.24*37.62*0.34)^0.5 =	25.61%