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Cov
r ij
ij i j
r the correlatio n coefficien t of returns
ij
i the standard deviation of R it
j the standard deviation of R
Standard Deviation
of a Portfolio
n 2 2 n n
port w w w Cov
i1 i i i1i1 i j ij
where :
port the standard deviation of the portfolio
Wi the weights of the individual assets in the portfolio, where
weights are determined by the proportion of value in the portfolio
i2 the variance of rates of return for asset i
Cov ij the covariance between the rates of return for assets i and j,
where Cov ij rij i j
Standard Deviation
of a Portfolio ( two stock)
An other way to calculate variance of a
two-stock portfolio and three stock
portfolio
variance of a two-stock portfolio