The variance of the sum of two investments will be equal to the sum of the variances of the two investments when the covariance between the investments is zero.

Question

Quizplus · Accepted Answer

This is true according to the formula for the variance of the sum of two random variables, which is Var(X+Y) = Var(X) + Var(Y) + 2Cov(X,Y). When the covariance is zero, the formula simplifies to Var(X+Y) = Var(X) + Var(Y).

The Variance of the Sum of Two Investments Will Be