![]() ![]() Let’s understand the portfolio standard deviation calculation of a three asset portfolio with the help of an example: Apply the values in the above-mentioned to derive the Standard Deviation formula Standard Deviation Formula Standard deviation (SD) is a popular statistical tool represented by the Greek letter 'σ' to measure the variation or dispersion of a set of data values relative to its mean (average), thus interpreting the data's reliability. ![]() Correlation can vary in the range of -1 to 1. Find the correlation between the assets in the portfolio (in the above case between the two assets in the portfolio).Find the weight of each asset in the overall portfolio.Find the Standard Deviation of each asset in the portfolio.Portfolio Standard Deviation FormulaĪssuming a Portfolio comprising of two assets only, the Standard Deviation of a Two Asset Portfolio can be computed using Portfolio Standard Deviation Formula: Portfolio Standard Deviation calculation is a multi-step process and involves the below-mentioned process. #Weighted standard deviation of a portfolio how toHow to Calculate Portfolio Standard Deviation? Standard Deviation of Portfolio is important as it helps in analyzing the contribution of an individual asset to the Portfolio Standard Deviation and is impacted by the correlation with other assets in the portfolio and its proportion of weight in the portfolio. ![]() ParticularsĪverage Rate of Return for the Last 3 Years read more, if Raman wishes to avoid excess volatility, he will prefer investment in Fund A compared to Fund B as it offers the same average return with less amount of volatility and more stability of returns. ![]() Thus based on his risk appetite Risk Appetite Risk appetite refers to the amount, rate, or percentage of risk that an individual or organization (as determined by the Board of Directors or management) is willing to accept in exchange for its plan, objectives, and innovation.
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