Corner Portfolio Standard Deviation Question

[rellison]

When calculating the standard deviation using 2 weighted corner portfolios, why is the standard deviation of the two equal to their weighted average, and not Var(X+Y)=(w1)^2*(Var(X))+(1-w)^2*(Var(Y))?
For example, Corner Portfolios 1 and 2 are weighted w=20% and 80%, so their standard deviation is .2*std1+.8*std2.

 

[cpk123]

corr between 2 cp’s is 0.

 

[justinmanu]

Perfect answer. It s what I am looking for. Thanks!

 

[Galli]

cpk123 wrote:
corr between 2 cp’s is 0.

Not true….
You assume correlation is 0 to simplify the standard deviation calc which actually creates an overall higher standard deviation calc - an upper bound so to say.
You would need a lot of covariances to calculate the standard deviation of the assets in each CP which is why you simplify the calculation.