CFA CFA Level 1 Portfolio Variance Equation (Expected Return vs no Expected Return)

Portfolio Variance Equation (Expected Return vs no Expected Return)

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    • Avatar of Stuj79Stuj79
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        • CFA Charterholder
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        Ah right, yes I see how that notation could be missinterpreted…glad to help 🙂

      • Avatar of Stuj79Stuj79
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          Nope, no expected return variables are included in the portfolio variance equation. It is:

          (weight of asset A squared x variance of asset A) + (weight of asset B squared x variance of asset B) + 2 x (weight of asset A) x (weight of asset B) x (correlationAB) x (stand dev A) x (stand dev B)

          the expected return of a two asset portfolio uses weighted expected return of individual assets….but not the variance/standard dev of portfolio equation.

        • Avatar of rsparksrsparks
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            • CFA Level 2
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            The B) has made my morning! 

          • Avatar of Stuj79Stuj79
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              Good god, it’s converted the “B )” in my post above into bloody smiley faces with sunglasses!! 

            • Avatar of mvibsmvibs
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                Thank you, here’s what I realized:

                Solution, I’m an idiot. I’ve started memorizing formulas on flash cards this week, and the difference in presentation made me think in the Quicksheet one the “(Ra)” figure was a separate factor of the equation instead of a more complete way of saying “variance OF return on asset A” vs. “variance TIMES return of asset A”

                View post on imgur.com

                Thanks for the help.

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