A portfolio has 40% of its value in ASX shares and the rest in Woodside Petroleum (WPL). The volatilities of ASX and WPL are 40% and 30%, respectively, and the correlation between ASX and WPL is -0.3. What is the standard deviation of the portfolio?

Question

Quizplus · Accepted Answer

The standard deviation of the portfolio is calculated using the formula: √(w1²σ1² + w2²σ2² + 2w1w2σ1σ2ρ), where w1 and w2 are the weights, σ1 and σ2 are the volatilities, and ρ is the correlation. Plugging in the values: √(0.4²*0.4² + 0.6²*0.3² + 2*0.4*0.6*0.4*0.3*(-0.3)) = 20.18%.

A Portfolio Has 40% of Its Value in ASX Shares