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Calculating portfolio standard deviation

If the correlation between D and E are o.5 and D has a standard deviation of 0.4 and E has a standard deviation of 0.6, what would be their comboned portfolio standard deviation if you put 40% in D?

I could get the answer, however, I am thrown by the addition of the fact that 40% gets put into D, and 60% would go into E.

Solution Preview

Hello!

Let's call Ra to the return of stock A, Rb to the return of stock B, 'a' to the fraction of the portfolio that corresponds to stock A (for example, 0.3 if it is 30%) and 'b' to the fraction of the portfolio that corresponds to stock B. The formula for the ...

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