Corner Portfolio Questions: Can someone please explain to me why we only take the weighted average of each portfolio’s st. deviation to get the portfolio st. dev? When calc. the active risk for a portfolio of several managers we assume correlation is zero but still run it through the normal portfolio variance formula. And when calc. the currency risk contribution we assume the weights are 1 but still run it through the normal portfolio variance formula. So, why do we only take the wt. avg here?
For corner portfolio the assumption is that correlation is 1 (linear combination).
Thanks.
Sure!