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Portfolio risk and risk of constituent stocks

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You own a portfolio of two stocks (X and Y), with 40% of the portfolio invested in Stock X. You have observed over many years that the variance of your portfolio value is 0.0144 and that the correlation between the stock X and stock Y is 0.7. If the standard deviation of Stock X is 0.20, what is the standard deviation of the stock Y?

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Portfolio variance = (Weight of Stock X in portfolio*standard deviation of stock X in portfolio)^2+(Weight of Stock Y in ...

Solution Summary

Illustrates how to calculate the standard deviation of a stock given the standard deviation for the portfolio of two stocks and standard deviation of one stock.