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What is the standard deviation of a portfolio of two stocks given the following data: Stock A has a standard deviation of 19%. Stock B has a standard deviation of 21%. The portfolio contains 60% of stock A and 40% in stock B, and the correlation coefficient between the two stocks is −0.4.

User Subarroca
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The standard deviation of the portfolio of two stocks is approximately 16.06%.The portfolio standard deviation is found to be approximately 16.06%.

The standard deviation of a portfolio of two stocks can be calculated using the formula:

Portfolio standard deviation = sqrt((wA^2 * σA^2) + (wB^2 * σB^2) + (2 * wA * wB * ρ * σA * σB))

where:

- wA and wB represent the weights of stock A and stock B in the portfolio, respectively (wA = 0.6 and wB = 0.4 in this case),

- σA and σB represent the standard deviations of stock A and stock B, respectively (σA = 19% and σB = 21% in this case),

- ρ represents the correlation coefficient between the two stocks (ρ = -0.4 in this case).

By substituting the given values into the formula, we can calculate the portfolio standard deviation as follows:

Portfolio standard deviation = sqrt((0.6^2 * 19%^2) + (0.4^2 * 21%^2) + (2 * 0.6 * 0.4 * -0.4 * 19% * 21%))

After performing the calculations, the portfolio standard deviation is found to be approximately 16.06%.Therefore, the standard deviation of the portfolio of two stocks is approximately 16.06%.

Learn more about Standard deviation here,

User Godsmith
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