A portfolio is equally weighted. Security One has a standard deviation of 10%. Security Two has a...
Question:
A portfolio is equally weighted. Security One has a standard deviation of 10%. Security Two has a standard deviation of 8%. The securities have a covariance of .4254. What is the portfolio variance?
.0061
.2168
.8590
.8549
.2209
The Variance of Returns:
The Variance of returns is the square of the standard deviation of returns and is used to measure the risk of a given investment. The higher the variance and/or standard deviation of returns, the riskier the investment, and consequently the higher the expected return based on the concept of risk aversion.
Answer and Explanation: 1
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View this answer{eq}Variance = {W1^2\sigma1^2 + W2^2\sigma2^2 + 2W1W2COV12}\\ Variance ={(0.5^2*0.10^2) + (0.5^2*0.08^2) + (2*0.50*0.50* 0.4254)}\\ Variance =...
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Standard Deviation & Variance in Finance
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Chapter 11 / Lesson 3
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Standard deviation and variance in finance are used to understand the stock market and its ups and downs. Learn about quantitative analysis in finance, how to calculate and use variance, standard deviation, and how to use the numbers.
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