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"Expected Return and Variance for a Two Asset Portfolio." Finance Train. N.p., 15 Apr. 2012. Web.  10 Jan. 2017.

"Expected Return, Variance And Standard Deviation Of A Portfolio." Investopedia. Investopedia, LLC, 03 June 2014. Web. 11 Jan. 2017.

Various Authors. "New York Stock Exchange (NYSE)." Encyclopædia Britannica. Encyclopædia Britannica, Inc., 08 Nov. 2011. Web. 10 Jan. 2017.

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Weight(A) = 30,000/70,000 = 0.4286
Weight(B) = 40,000/70,000 =  0.5714
ExpectedReturn(Portfolio) = 0.4286*0.15 + 0.5714*0.25 = 0.20714
Variance(Portfolio) = 0.4286^2 * 0.05^2 + 0.5714^2 * 0.20^2 + 2(0.4286*0.5714*0.30*0.05*0.20) = 0.0150 or 1.5%
StD = sqrt(0.0150) = 0.1225 or 12.25%

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www.mikepeel.net

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Amount        Expected Returns        StD
Stock A         $30,000                      15%                   5%

Stock B         $40,000                      25%                   20%

Correlation/Covariance(A, B) = 0.30

Find the expected return and variance of the portfolio. Then, find the standard deviation of the portfolio.

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Basic Formulas for a Two-Asset Portfolio

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Basic Formulas for a Two-Asset Portfolio

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ExpectedReturn(Portfolio) = weight(1)*ExpectedReturn(1) + weight(2)*ExpectedReturn(2)

Variance(Portfolio) = weight(1)^2 * StD(1)^2 + weight(2)^2 * StD(2)^2 + 2(weight(1)*weight(2)*Covariance(1,2)*StD(1)*StD(2))

StD^2 = Variance

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Dow Jones Industrial Average (1929 - 2005)

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Dow Jones Industrial Average (1929 - 2005)

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www.finance.yahoo.com

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www.investopedia.com

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Harry Markowitz, an economist, introduced this theory in 1952. Also known as mean-variance-analysis, the modern portfolio theory defines the mathematical framework that can be used to find optimal asset allocations given the expected return (mean) and risk (variance) of each asset. Furthermore, the level of correlation between stocks (defined as covariance) is used to find the overall risk of a portfolio to fully analyze the portfolio.

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At the most basic level, optimizing asset allocation requires finding which portfolio, or group of assets, has the highest expected return for a certain degree of risk. Finding the optimal portfolio requires calculations based on the input of both expected returns and risk.
Expected return and risk inputs are based on historical data.

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Today, most people invest a large sum of their money into the stock market to reach a certain goal, whether it be saving for retirement, buying something expensive, or for another reason. People employ strategies from their gut feelings to mathematical models in order to try to maximize profits and minimize losses.

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The first major stock exchange, the New York Stock Exchange, was created in 1792 by 24 supply brokers. During this time, America had just recently declared independence and were trying to build up themselves economically. It wasn't uncommon for groups to pool their savings together to start new businesses, and the stock exchange facilitated the growth of these companies.

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New York Stock Exchange Educational Documentary

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Stock Market : History of the New York Stock Exchange

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The New York Stock Exchange began in 1792, with people exchanging certificates at a common meeting place for George Washington. Learn about the movement of the New York Stock Exchange over the years with help from a personal asset manager in this free video on investing in the stock market and money management.