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Inspect the tempting shortcut
For the 40/60 model with standard deviations 20%/10%, adding 0.4×20%+0.6×10% produces 14%. Calling this portfolio volatility silently drops the entered correlation 0.3.
Use the variance identity
Square the weighted own dispersions and include 2wAwBρσAσB. The resulting variance is 0.01288 and its square root is approximately 11.349009%. Keep the weighted 14% figure as a named comparator rather than deleting it.
Identify when equality is justified
| Correlation | Portfolio volatility | Weighted standalone |
|---|---|---|
| +1 | 14% | 14% |
| 0.3 | 11.349009% | 14% |
| −1 | 2% | 14% |
Review the output label
A correct weighted sum can still answer the wrong question. Before interpreting a result, identify whether the task asks for a mean return, a weighted standalone dispersion, variance or portfolio standard deviation. Each uses a different operation.