Question

Returns on stocks X and Y are listed below:

 Period 1 2 3 4 5 6 7 

Stock X 6% 5% -2% 10% 3% 8% -4% 

Stock Y 11% 7% 10% -2% 3% 5% -1% 

Consider a portfolio of 70% stock X and 30% stock Y. 

What is the (population) standard deviation of portfolio returns? 

Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123). Note that the correct answer will be evaluated based on the full-precision result you would obtain using Excel

Answer 1

The standard deviations of X and Y are respectively

Since the portfolio consists of 70% of X and 30% of Y

So the standard deviation of the Portfolio of returns is

So the standard deviation of the Portfolio of returns is 0.078