Calculate the Standard Deviation of a Two-stock Portfolio
Not what you're looking for?
Let X and Y be two stocks with the following features:
- Stock X Expected Return 14%
- Stock Y Expected Return 18%
- Stock X Standard Deviation 40%
- Stock Y Standard Deviation 54%
- Correlation(X,Y) = .25
- Mean is 15.6%
What is the standard deviation for a portfolio with 60% in stock x and 40% invested in stock Y?
Purchase this Solution
Solution Summary
The solution carefully explains all the concepts, the logic while showing the formulas and the calculations to arrive at the answers.
Solution Preview
The formulas used to compute the answer are the following.
Let X and Y be random variables, and let a and b be numbers. Then,
1) Var(X) = SD(X)^2 (SD is standard deviation)
2) Var(aX+bY)=a^2*Var(X)+b^2*Var(Y)+2*a*b*Cov(X,Y) (Cov is covariance)
3) Correlation(X,Y)= Cov(X,Y)
-------------
SD(X)*SD(Y)
In ...
Purchase this Solution
Free BrainMass Quizzes
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce