How do you calculate the variance of a three asset portfolio?

How do you calculate the variance of a three asset portfolio?

To calculate the portfolio variance of securities in a portfolio, multiply the squared weight of each security by the corresponding variance of the security and add two multiplied by the weighted average of the securities multiplied by the covariance between the securities.

What is the formula for portfolio variance?

The most important quality of portfolio variance is that its value is a weighted combination of the individual variances of each of the assets adjusted by their covariances. The formula for portfolio variance in a two-asset portfolio is as follows: Portfolio variance = w12σ12 + w22σ22 + 2w1w2Cov.

How do you calculate portfolio variance in Excel?

Examples of Portfolio Variance Formula (With Excel Template)

  1. Variance= (20%^2*2.3%^2)+(35%^2*3.5%^2)+(45%^2*4%^2)+(2*(20%*35%*2.3%*3.5*0.6))+(2*(20%*45%*2.3%*4%*0.8))+(2*(35%*45%*3.5%*4%*0.5))
  2. Variance = 0.000916.

What is the formula for determining portfolio returns?

The simplest way to calculate a basic return is called the holding period return. Here’s the formula to calculate the holding period return: HPR = Income + (End of Period Value – Initial Value) ÷ Initial Value.

How do I calculate variance in Excel?

Sample variance formula in Excel

  1. Find the mean by using the AVERAGE function: =AVERAGE(B2:B7)
  2. Subtract the average from each number in the sample:
  3. Square each difference and put the results to column D, beginning in D2:
  4. Add up the squared differences and divide the result by the number of items in the sample minus 1:

How do you calculate portfolio value?

Calculating Your Total Portfolio Value Take each stock that you own and look up how many shares you own. Then, look up how much the stock is currently worth at your brokerage’s site or another stock quote service. For each stock, multiply the number of shares you own by the current price.

How do you calculate total portfolio?

Once you know the expected return and weight of each asset held in your portfolio, you can multiply the expected return of each asset by its weight. Finally, you’ll add up the product of each asset to calculate the total expected return of your portfolio overall.

How do you calculate variance of returns?

Let’s start with a translation in English: The variance of historical returns is equal to the sum of squared deviations of returns from the average ( R ) divided by the number of observations ( n ) minus 1.

How do you calculate the portfolio variance of two assets?

The correlation is denoted by ρ. Finally, the portfolio variance formula of two assets is derived based on a weighted average of individual variance and mutual covariance, as shown below. Portfolio Variance formula = w 1 * ơ 1 2 + w 2 * ơ 2 2 + 2 * ρ 1,2 * w 1 * w 2 * ơ 1 * ơ 2

What is portfolio Var and how is it calculated?

One of the most striking features of portfolio var is the fact that its value is derived on the basis of the weighted average of the individual variances of each of the assets adjusted by their covariances. This indicates that the overall variance is lesser than a simple weighted average of the individual variances of each stock in the portfolio.

How do you calculate the volatility of a portfolio?

The volatility is best measured using standard deviation which can be calculated as follows: σ = (σ 2) 1/2 = (0.0916%) 1/2 = 3.03%. If the assets had perfect correlation and they move together, the portfolio variance and standard deviation would have been 0.1215% and 3.49%.

How do you calculate the risk level of a portfolio?

Usually, the risk level of a portfolio is gauged using the standard deviation, which is calculated as the square root of the variance. The variance is expected to remain high when the data points are far away from the mean, which eventually results in a higher overall level of risk in the portfolio, as well.