Bill beat the market on a risk adjusted basis
true or false
The variance of returns on a portfolio of risky assets is a weighted sum of the variance of the individual assets. TRUE FALSE.
Answer:
False
Explanation:
The statement that the variance of returns on a portfolio of risky assets is a weighted sum of the variance of the individual assets is false. In fact overall portfolio variance of risky assets is smaller than a simple weighted sum of the variance of the individual assets in the portfolio. The portfolio variance is weighted combination of its individual variances adjusted by its covariance.
For example the portfolio variance of two risky assets is given by following formula:
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