What Role Does the Standard Deviations of Two Assets Play

question 73

Essay

What role does the standard deviations of two assets play in computation of the expected return of the two asset portfolio?

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Definitions:

Student T Distribution

A probability distribution used in statistical inference for datasets with small sample sizes and unknown population standard deviations.

Variance

A measure of the dispersion of a set of data points around their mean; the average of the squared differences from the Mean.

Degrees of Freedom

The number of independent values or quantities that can freely vary in the analysis of statistical calculations without violating any constraints.

Exponential Distribution

A continuous probability distribution used to model the time between events in a process with a constant rate.