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Portfolio Variance / Risk Calculator

Measures the overall risk (variance) of a multi-asset portfolio.

Portfolio Variance / Risk Calculator

Calculate your portfolio's variance and risk to assess overall portfolio volatility

Enter the same number of values for weights and volatilities. Correlations can be single values or multiple values. All values should be separated by commas (e.g., 40, 30, 30 for weights).

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Complete Guide to Portfolio Variance

Everything you need to know about calculating and interpreting portfolio variance

Portfolio variance measures the dispersion of portfolio returns around the expected return. It's calculated by considering the weights of individual assets, their individual variances, and the correlations between them. Portfolio risk (standard deviation) is the square root of portfolio variance.

Understanding portfolio variance is crucial for risk management and portfolio optimization. It helps investors assess the overall risk of their portfolio and make informed decisions about asset allocation, diversification, and risk tolerance. Lower portfolio variance generally indicates more stable returns.

Frequently Asked Questions

Common questions about Portfolio Variance

What is Portfolio Variance?

Portfolio variance measures the dispersion of portfolio returns around the expected return. It's calculated by considering the weights of individual assets, their individual variances, and the correlations between them. Portfolio risk (standard deviation) is the square root of portfolio variance.

How do I calculate Portfolio Variance?

Portfolio variance is calculated using the formula: σ²p = Σ(wi² × σi²) + ΣΣ(wi × wj × σi × σj × ρij). This considers individual asset weights (wi), variances (σi²), and correlations (ρij). The formula accounts for both individual asset risks and how assets move together.

What is considered high Portfolio Variance?

High portfolio variance depends on your risk tolerance and investment objectives. Generally, variance above 400 (20% standard deviation) is considered high, 225-400 (15-20%) is moderate, and below 225 (15%) is low. However, what's considered high varies by asset class and market conditions.

What does high Portfolio Variance mean?

High portfolio variance means the portfolio experiences large and frequent fluctuations in returns. This indicates higher risk and uncertainty about future performance. While high variance can lead to significant gains, it also increases the risk of substantial losses. It's important to understand your risk tolerance.

What does low Portfolio Variance mean?

Low portfolio variance means the portfolio experiences small and infrequent fluctuations in returns. This indicates lower risk and more predictable performance. While low variance reduces the risk of losses, it may also limit the potential for significant gains. It's suitable for conservative investors.

How does diversification affect Portfolio Variance?

Diversification can significantly reduce portfolio variance by combining assets with low correlations. When assets don't move together, their individual risks partially cancel out, reducing overall portfolio risk. Effective diversification is one of the most powerful tools for risk management in portfolio construction.

What are the limitations of Portfolio Variance?

Portfolio variance assumes returns are normally distributed and may not capture tail risks or extreme events. It's based on historical data and may not predict future variance. It doesn't distinguish between upside and downside volatility. It assumes correlations remain stable, which may not be true during market stress.

How can I reduce Portfolio Variance?

You can reduce portfolio variance through diversification across different asset classes, sectors, and geographic regions. Consider adding low-volatility assets like bonds or defensive stocks. Use correlation analysis to identify assets that provide good diversification benefits. Regular rebalancing can also help maintain target risk levels.

Why is Portfolio Variance important for investors?

Portfolio variance is crucial for investors as it helps assess overall portfolio risk and make informed decisions about asset allocation. It guides portfolio construction, risk management, and investment decisions. Understanding variance helps investors build portfolios that match their risk tolerance and investment objectives.

How do institutional investors use Portfolio Variance?

Institutional investors use portfolio variance for risk management, portfolio optimization, and performance evaluation. They set variance targets, use variance-based position sizing, and implement variance hedging strategies. Portfolio variance helps them assess risk-adjusted returns and make informed decisions about asset allocation and risk management.

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Portfolio Variance / Risk Calculator

Measures the overall risk (variance) of a multi-asset portfolio.

How to use Portfolio Variance / Risk Calculator

Step-by-step guide to using the Portfolio Variance / Risk Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Portfolio Variance / Risk Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Portfolio Variance / Risk Calculator is designed to be user-friendly and provide instant calculations.

Is the Portfolio Variance / Risk Calculator free to use?

Yes, the Portfolio Variance / Risk Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Portfolio Variance / Risk Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Portfolio Variance / Risk Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.