You have a portfolio of investment which consists of Mutual

You have a portfolio of investment which consists of Mutual Fund A with a return of A% and Stock B with a return of B%. Given the following average returns and variances for both A and B,

M(A) = 10%, M(B) = 41%

Solution

Portfolio variance = (weight(1)^2*variance(1) + weight(2)^2*variance(2) + 2*weight(1)*weight(2)*covariance(1,2)

Let us assume equal weight for both mutual fund and stock

=0.5^2*0.03+0.5^2*.12+2*0.5*0.5*0.32

=0.20

Total Portfolio Variance= 20%