Fixed my forumla. Should have been squaring the ratios as well:
Variance of C = .6^2 * (variance of A) + .4^2 * (variance of B) * 2 * .4 * .6 (covariance)
Well explained here: Portfolios of Two Assets
Imagine two stocks A and B with known standard deviations and the correlation between them.
Another stock, say, an index C, is composed of 60% of A and 40% of B. What is the standard deviation of this index?
I have used the following forumla:
Covariance of A and B = correlation * SD of A * SD of B
Variance of C = .6 * (variance of A) + .4 * (variance of B) * 2 * .4 * .6 (covariance)
Then I square root the variance of C for the std dev. Is this right?
Thanks in advance.