Financial Management Portfolio Question for Tutorial?
An equally weighted portfolio consists of 10 assets which all have a standard deviation of 0.4. The average covariance between the assets is 0.124. Compute the standard deviation of this portfolio. Please enter your answer to FOUR decimal places (ie 0.2345 instead of 23.45%).
Any help would be great thank you
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Var(P) = ΣΣ (1/10)*(1/10)* Cov(A[i], A[j]) = Σ(1/10)^2*Var(A[i]) +ΣΣ(1/10)^2* Cov(A[i], A[j])
= Σ(1/10)^2*0.4^2+(1/10)^2*ΣΣ Cov(A[i], A[j]) = 10*(1/10)^2*0.4^2 + (1/10)^2*(10)*9*0.124 = 0.1276
So Std Dev(P) = Sqrt(0.1276) = 0.357