As a basis for understanding the expected performance of a basket of investments (a portfolio of stocks, for example), it is good to consider Table 5-7 on page 242. Here, there are two assets, maybe representing two different stocks, and the expected return on an investment in each of those assets. Each year, the assets provide different returns. In the table, half of the portfolio of assets is comprised of the first asset and the rest of the portfolio is comprised of the second asset. The expected return on the portfolio over five years is simply the average of the expected returns on the portfolio each year. The standard deviation of the annual portfolio returns is calculated using formula 5.3a. on page 236. If you do not understand how to use this formula, study more and let me know if you are still having problems.
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