The three parts of Eq. 12.4 each account for an important determinant of the overall variance of the portfolio: the risk of stock 1 the risk of stock 2 an adjustment for how much the two stocks move together (their correlation, given as Corr(R1,R2))
The three parts of Eq. 12.4 each account for an important determinant of the overall variance of the portfolio: the risk of stock 1the risk of stock 2an adjustment for how much the two stocks move together (their correlation, given as Corr(R1,R2))