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Unformatted text preview: 71Standard Deviation of a Portfolio The Formulajiijijij2iiportrCovwherej,andiassetsfor return ofratesebetween thcovariancetheCoviasset for return ofratesofvariancetheportfolioin thevalueofproportionby thedeterminedareweightswhereportfolio,in theassetsindividualtheofweightstheWportfoliotheofdeviation standardthe:wheren1in1iijCovjwn1iiw2i2iwport========+=72Standard Deviation of a Portfolio Computations with A TwoStock Portfolio Any asset of a portfolio may be described by two characteristics:The expected rate of returnThe expected standard deviations of returnsThe correlation, measured by covariance, affects the portfolio standard deviationLow correlation reduces portfolio risk while not affecting the expected return73Standard Deviation of a Portfolio Two Stocks with Different Returns and Risk1 .10 .50 .0049 .07 2 .20 .50 .0100 .10W)E(RAsset ii2iissCase Correlation Coefficient Covariancea +1.00 .0070b +0.50 .0035c 0.00 .0000d 0.50 .0035e 1.00 .007074...
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 Spring '12
 DAVIDBRAY

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