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What is the standard deviation of a portfolio of two stocks given the following data: Stock A has a standard deviation of 30%. Stock B has a standard deviation of 18%. The portfolio contains 60% of stock A, and the correlation coefficient between the two stocks is -1.

Answer :

ogorwyne

Answer:

10.8%

Explanation:

the portfolio standard deviation measures the volatility of the risks of an investment.

the formula for portfolio standard deviation is W1A-W2B

but we only use this formula when the correlation between the two stocks are perfectly negative.

W1A =

60% x 30%

= 0.60 x 0.30

= 0.18

= 18%

W2B

= (1-0.60) x 18%

= 0.40 x 0.18

= 0.072

= 7.2%

W1A - W2B

= 18% - 7.2%

= 10.8%

thank you

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