Suppose you own a portfolio with two securities. Security A has an expected return of 13.4% and a standard deviation of 59% per year. Security B has an expected return of 9.3% and a standard deviation of 44% per year. Considering that your portfolio is composed of 35% of Security A and 65% of Security B, and that the correlation between their returns is .25, what is the standard deviation of your portfolio?
Standard Deviation of portfolio = [(standard Deviation A)2(Weight A)2 +(standard Deviation B)2(Weight B)2 +2 (Standard Deviation A)(Standard Deviation b)(Weight A)(Weight B)(Correlation coefficient between A and B)]1/2
= (426.4225 + 817.96+295.295)1/2
= 39.24%
Suppose you own a portfolio with two securities. Security A has an expected return of 13.4%...