Answer:
Standard deviation = 9.73%
Explanation:
σP =[tex]\sqrt{w_A^2\sigma_A^2 + w_B^2 \sigma_B^2 + 2*w_A*w_B*\sigma_A\sigma_B\rho_(_A_,_B)}[/tex]
where:
wA = the portfolio weight of the first asset
wB = the portfolio weight of the second asset
σA= the standard deviation of the first asset
σB = the standard deviation of the second asset
cov(A,B) = the covariance of the two assets, which can also be expressed as: σAσBp(A,B), where p(A,B) is the correlation coefficient between the two assets
σP =[tex]\sqrt{0.4^2*0.18^2 + 0.6^2* 0.14^2 + 2*0.4*0.6*0.18*0.14*-0.23)}[/tex] =[tex]\sqrt{0.00945792}[/tex]=9.73%
