Consider a portfolio consisting of a - 200,00,000 investment in share XYZ and a - 200,00,000 investment in share ABC. The daily standard deviation…

The standard deviation of the daily change in the investment in each asset is 2,00,000 i.e. 2 lakhs. The variance of the portfolio's daily change is V = 2² + 2² + 2 x 0.3 x 2 x 2 = 10.4 σ (Standard Deviation) = √10.4 = 3.22 lakhs Alternatively, it can also be computed as follows: = (1) ²(0.50)² + (1) ²(0.50)² + 2 (1) (1) (0.3)(0.50)(0.50) = 0.25 + 0.25 + 0.15 = 0.65% σ (Standard Deviation) = √0.65 = 0.80623% σ (Standard Deviation) in Amount = 400 lakhs x 0.80623% = 3.22 lakhs Accordingly, the standard deviation of the 10-day change is 3.22 lakhs x √10 = 10.18 lakh Since 1% of a normal distribution lies more than 2.33 standard deviations below the mean. The 10-day 99 percent value at risk is therefore 2.33 × ₹ 10.18 lakh = 23.72 lakh