A portfolio is formed with 50% of your money in Stock 1 and 50% of your money in Stock 2. Stock 1 has a standard deviation of 0.03, and Stock 2 has a standard deviation of 0.075. Which comes closest to the portfolio variance if the covariance between Stock 1 and Stock 2 is -0.005?
Portfolio variance assesses the dispersion of average returns of a portfolio from its mean.
It is the function of the variance of the portfolio constituent assets and the covariance between the each of them.
Answer and Explanation:
Portfolio variance can be computed by using the following equation
Portfolio variance =(W1*sd1)^2+(W2*sd2)^2+2*W1*W2*(covariance between Stock 1&...
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fromChapter 12 / Lesson 1
A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.