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115 CFA
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115.100.02.02 Portfolio Management - Reading 52 - 2. Variance and Covariance of Returns

2. Variance and Covariance of Returns

c. calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data;

What is the formula for standard deviation of a two-asset portfolio?
$$\sigma_{portfolio} = \sqrt{\omega_j^2 \sigma_j^2 + \omega_k^2 \sigma_k^2 + 2 \omega_j \omega_k {cov}_{jk}}$$
- The weighted average of the individual variances, plus
- The weighted covariances between all the assets of the portfolio


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  • CFA