The weighted average of the standard deviations

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Reference no: EM132074327

MicroD-ynamics stock has a standard deviation of 12% and beta of 2.0; and MacroU-ndynamics has a standard deviation of 6% and a beta of 0.8. In an equally weighted portfolio of MicroD and MacroU stocks, your portfolio beta is expected to be 1.4. You calculate the standard deviation of the same equally weighted portfolio of MicroD and MacroU stocks to be 5%. Explain why the portfolio standard deviation is lower than either stock's standard deviation and not the weighted average of the standard deviations.

Reference no: EM132074327

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