Evaluating and Managing Risk in a Diversified Portfolio

As a portfolio manager for a diversified fund, you have been asked to evaluate the risk exposure of your portfolio. The portfolio comprises 60% equities and 40% fixed income securities. The expected return for equities is 8%, and their standard deviation is 15%, while the expected return for fixed income is 4% with a standard deviation of 5%. The correlation between equities and fixed income is -0.2.

Discuss how you would calculate the overall risk (standard deviation) of your portfolio. Additionally, explain the significance of considering the correlation between asset classes when measuring risk. Provide recommendations for managing the risks identified in the portfolio.