What is value at risk for a portfolio of two assets?

What is value at risk for a portfolio of two assets?

Approach: Compute using portfolio variance with correlation.

Assuming normal returns, portfolio variance σp² = w₁²σ₁² + w₂²σ₂² + 2w₁w₂ρσ₁σ₂. VaRα = -μp + zα σ_p for horizon and confidence.

Follow-up: What if non-normal?

Key concepts: portfolio variance, normal assumption, covariance matrix.