this is a question from the 2021 Boston mock exam. The question is: Calculate the percentage contribution to total portfolio risk for each of the three funds held in Kibble’s US equity portfolio
I understand the guideline answer, but how come that:
- when I square the SD for a given fund, it does not equal to the covariance of that fund with itself (which, I believe, should as the covariance with itself is just variance, right)?
- how come the formula for contribution of a given asset / fund to variance, which equals to: Covariance of given fund / asset to portfolio * weight of that asset / fund; does not produce the correct answer?
Thanks for your help,