A portfolio has 60% invested in an equity index with a 29.95% std devn and 40% invested in bond portfolio with a std devn of 6.94% What is the portfolio std devn assuming both the std devns mentioned above are sample std devn? My answer comes out to be 20.xx whereas the answer mentioned in the text book is 18.xx What am I missing?
is the question complete? i mean shouldnt there be a covariance or a correlation to calculate the SD of the portfolio?
That was the question I saw.
I dont think its possible to answer this question without being given a correlation or covariance. You got ~20 as your answer, the textbook saws ~18. My guess is there is a part of the question missing and there is a component of diversification which actually lowers the standard deviation of the portfolio. ie. the portfolio becomes less riskier when correlations between two assets are less than 1.
Okay. Thanks.