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Which of the following equations is correct for calculating the ex-ante standard deviation of a three-security...

Which of the following equations is correct for calculating the ex-ante standard deviation of a three-security portfolio?
(w = weight; s = standard deviation; p = correlation; ER = expected return; ½ = square

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Answer #1

Let the weight of security 1 = w1

weight of security 2 = w2

weight of security 3 = w3

standard deviation of security 1 = s1

standard deviation of security 2 = s2

standard deviation of security 3 = s3

correlation between security 1 and security 2 = p1

correlation between security 2 and security 3 = p2

correlation between security 3 and security 1 = p3

standard deviation = { w1^2s1^2 + w2^2s2^2 + w3^2*s3^2 + 2 * w1w2*p1*s1*s2 + 2 * w2*w3*p2*s2*s3 + 2*w3*w1*p3*s3*s1} ^0.5

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