Questions / Quant trading, Sizing & risk
Two independent risks
An equally weighted portfolio holds two uncorrelated assets with volatilities 20% and 10% over the same horizon. What is portfolio volatility, as a percentage?
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Answer: 11.18%
- Variance in percentage-point units is 0.5² × 20² + 0.5² × 10² = 125. Volatility is √125 ≈ 11.18%.
Interview shortcut. Uncorrelated: √(0.5² × 20² + 0.5² × 10²) = √125.
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