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If the correlation between asset X and asset Y is 0.6 and the standard deviations are...

If the correlation between asset X and asset Y is 0.6 and the standard deviations are 4% and 6% respectively. What is the covariance between the two assets? What is the standard deviation for the portfolio of these two assets if the weight of asset X and 40% and asset B is 60%?

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Answer #1

Covariance = 0.60(0.04)(0.06)

Covariance = 0.00144

Standard Deviation = [(0.40)2(0.04)2 + (0.60)2(0.06)2 + 2(0.40)(0.60)(0.00144)]1/2

Standard Deviation = 4.74%

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