Portfolio Risk (Two-Asset Portfolio)
Total risk is measured in terms of variance (a2, pronounced sigma square) or standard deviation (a, pronounced sigma) of returns. Unlike portfolio expected return, portfolio variance (or standard deviation) is net the weighted average of variance (or standard deviation) of returns on individual assets (securities) in the portfolio: The overall risk of the portfolio includes the interactive risk of an asset relative to the others, measured by the contrivance of returns. The contrivance, in turn,. depends on the correlation between returns on assets in the portfolio. The total risk of a portfolio made up of two assets is defined by the Equation 3.6.