The standard deviation of the two assets does not play any role in computation of the expected return of the two-asset portfolio.

Question

Quizplus · Accepted Answer

The standard deviation of the two assets only affects the computation of the portfolio's overall risk, measured by the portfolio standard deviation (which takes into account the correlation between the two assets). The expected return of the portfolio is simply a weighted average of the expected returns of the two assets, regardless of their standard deviation.

The Standard Deviation of the Two Assets Does Not Play