Question

What is the standard deviation of a portfolio made up of 40% Stock A and 60% Stock B?

Stock	Expected Return	Beta	Standard Deviation	Correlation Coefficient ρ A,B
A	14%	1.5	0.36	0.9
B	11%	2.0	0.23

Answer 1

Standard deviation is   27.49%

Standard Deviation of portfolio	=	((WA)^2*(SDA)^2+(WB)^2*(SDB)^2+2*WA*WB*SDA*SDB*CorrA,B)^(1/2)
	=	((0.40)^2*(0.36)^2+(0.60)^2*(0.23)^2+2*0.40*0.60*0.36*0.23*0.9)^(1/2)
	=	27.49%
Where,
WA	=	Weight of Stock A	=	0.40
WB	=	Weight of Stock B	=	0.60
SDA	=	Standard deviation of Stock A	=	0.36
SDB	=	Standard deviation of Stock B	=	0.23
CorrA,B	=	Correlation coefficient of Stock A and Stock B	=	0.9