The formula for the standard deviation of a 2-stock portfolio is:
s = [WA2sA2 + WB2sB2 + 2WAWBsAsBrA,B]1/2
s = [(0.72 × 0.22) + (0.32 × 0.152) +( 2 × 0.7 × 0.3 × 0.2 × 0.15 × 0.32)]1/2 = [0.0196 + 0.002025 + 0.004032]1/2 = 0.02565701/2 = 0.1602, or approximately 16.0%.
