Portfolio Variance Calculator
Calculate portfolio variance and volatility from your asset weights and standard deviations. Measure risk and the impact of correlation on diversification.
Variance in percentage squared
Annual standard deviation
Use a value between -1 and 1. Default 0.3 is a typical stock-to-stock correlation.
Portfolio Assets
What is Portfolio Variance?
Portfolio variance measures the dispersion of possible returns around the expected return of a portfolio. It is the square of portfolio volatility (standard deviation) and reflects total risk— both from individual asset volatility and from the correlation between assets.
A lower portfolio variance generally means a more stable portfolio for a given level of expected return. Diversification reduces variance when assets are not perfectly correlated (correlation < 1).
How to Use This Calculator
- Add assets: Enter each holding with a name (e.g. ticker), weight as a percentage of the portfolio, and annual standard deviation (volatility) in percent.
- Weights: Enter weights in any scale; they are normalized to sum to 100%. You can use dollar amounts proportionally (e.g. 60 and 40 for 60/40).
- Correlation: Set the average correlation between your assets. Typical stock-to-stock correlation is around 0.2–0.5. Lower correlation increases diversification benefit.
- Results: Portfolio variance (σ²) and volatility (σ) update automatically. Volatility is the annualized standard deviation of portfolio returns.
Why Portfolio Volatility Matters
Understanding portfolio variance helps you quantify risk, compare portfolios, and see how correlation affects diversification. It is used in mean-variance optimization, risk-adjusted metrics (e.g. Sharpe ratio), and position sizing.
- Risk budgeting: Allocate risk across assets based on volatility and correlation.
- Diversification: Lower correlation between assets reduces portfolio variance for the same expected return.
- Benchmarking: Compare your portfolio’s volatility to an index or target.
Frequently Asked Questions
What is portfolio variance?
Portfolio variance measures the dispersion of possible returns around the expected return of a portfolio. It is the square of portfolio volatility (standard deviation) and reflects total risk from individual asset volatilities and correlations between assets.
How do you calculate portfolio variance?
Portfolio variance is calculated as σ²_p = Σ wᵢ²σᵢ² + Σᵢ≠ⱼ ρᵢⱼ wᵢwⱼσᵢσⱼ, where wᵢ are weights, σᵢ are standard deviations, and ρᵢⱼ are correlations. Our calculator uses a constant average correlation for simplicity.
What is portfolio volatility?
Portfolio volatility (standard deviation) is the square root of portfolio variance. It represents the annualized typical swing in portfolio returns and is commonly expressed as a percentage (e.g. 15% volatility).
Why does correlation matter for portfolio variance?
Lower correlation between assets reduces portfolio variance for the same expected return—this is the diversification benefit. When assets are not perfectly correlated, combining them smooths out returns and lowers overall risk.
Model Risk, Then Build the Strategy
You've quantified your portfolio risk—next, build indicators and strategies that match it. Use Pineify's Pine Script editor and AI to create custom risk and volatility tools on TradingView.