P1 T2: when is weightage squared in calculating variance?

[Dingwen]

Hi all,

Looking at the solutions provided in Q&A for Miller notes, Miller Chapter 3 Q3 squared the weightage but Miller Chapter 4 Q1 did not. What is the reason?

Thanks!

 

[ShaktiRathore]

Hi
For calculating variance of portfolio with several securities and correlation b/w them the weights are squared,but when Expected value of variance is calculated we take probability weights which are not squared but taken as it is , the exp Var=summation(wi*(x-mean)^2) where wi are probability weights we calculate std deviation as square root of this variance where all weights are equal to 1/n. But in context of portfolio of interelated securities we calculate variance using squred weighting only.
Thanks