Mock 2017 AM, Question 10A
In the 2017 Mock question 10A they calculate the standard deviation with the following formula: ((weight1)^2 * (stdev1)^2 + (weight2)^2 * (stdev2)^2 + 2 * (weight1 * weight 2 * stdev1 * stdev2 * Correlation))^0.5.
Why do I get a different solution for the standard deviation if I calculate it the following way:
beta = Cov / variance –> beta is given 0.78; Cov = weight1 * weight 2 * Correlation -> solve for variance -> stdev = variance^0.5
Can someone shed some light on this?
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