Investment is all about reward versus variability (risk). The return measures the reward of an investment and dispersion is a measure of investment risk.

The

where μ is the mean and N is the number of scores.

To compute variance in a sample:

where m is the sample mean.

The formula for the

The

- The weighted average of the individual variances, plus
- The weighted covariances between all the assets in the portfolio.

In a two-asset portfolio:

The maximum amount of risk reduction is predetermined by the correlation coefficient.

What is the standard deviation of a portfolio (E), assuming the following data?

σ

Solution:

Cov

Standard Deviation of Portfolio [0.5

If there are three securities in the portfolio, its standard deviation is:

lucymiami: is there any way to calculate covariances or correlations on return using BA II Plus calculator, thnx |

jejasin: unfortunately, no. Just have to remember these. |

maryprz14: I forgot what was p! :/ |

CFANathan: p = correlation coefficient |