Discuss whether the standard deviation of a portfolio is, or is not, a weighted average of the standard deviations
of the assets in the portfolio. Fully explain your answer.
What will be an ideal response?
The standard deviation of a portfolio is not a weighted average of the standard deviations of the assets in the portfolio.
If the portfolio is well-diversified then it should have a standard deviation that is lower than most or all of the assets
placed in that portfolio. Betas can be averaged, but standard deviations cannot, due to the diversifiable risk that is
contained in the standard deviation but not reflected by beta.
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