The variance of a portfolio of two investments will be equal to the sum of the variances of the two investments plus twice the covariance between the investments.

Question

Quizplus · Accepted Answer

This formula for the variance of a portfolio is known as the two-asset portfolio formula and is widely used in finance. It takes into account the individual variances of the investments as well as the covariance (or correlation) between them. By adding twice the covariance term, it reflects the impact of the investments on each other and how they will interact within the portfolio.

The Variance of a Portfolio of Two Investments Will Be