Difference in standard deviation of 2 sotck indexes

yasin · May 5, 2020, 5:02am

hi i cant figure out why the difference column doesnt give standard deviation of s&p500 - standard deviation of small cap stock)… will appreciate if you guys could explain…

breadmaker · May 5, 2020, 6:20am

Difference in means is linear; difference in standard deviations is NOT.

Var(diff) = Var(s&p) + var (small cap) - 2 * Covariance (s&p, small cap)

yasin · May 5, 2020, 6:30am

thanks bread… this gives me one of those light bulb goes on in a dark head moments…