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Calculating the Variance and Standard Deviation

Question: A portfolio is made up of 75% of stock 1, and 25% of stock 2. Stock 1 has a variance of .08, and stock 2 has a variance of .035. The covariance between the stocks is -.001. Calculate both the variance and the standard deviation of the portfolio.

Solution Preview


Variance or standard deviation of a stock/portfolio is an indicator of risk.

In the given example we have
Weight of stock 1 = w1 = 75% or 0.75
Weight of stock 2 = w2 = ...

Solution Summary

In about 120 words, this solution contains calculations for variance and the standard deviation of the given portfolio. A step by step response, which includes the required equations is provided.