Ρ AB = correlation coefficient between returns on asset A and asset B. Ω B = weight of asset B in the portfolio Σ P = is the portfolio standard deviation
Σ P = (w A 2σ A 2 + w B 2 σ B 2 + w C 2σ C 2 + 2w Aw Bσ Aσ Bρ AB + 2w Bw Cσ Bσ Cρ BC + 2w Aw Cσ Aσ Cρ AC) 1/2 Portfolio standard deviation for a two-asset portfolio is given by the following formula: Owing to the diversification benefits, standard deviation of a portfolio of investments (stocks, projects, etc.) should be lower than the weighted average of the standard deviations of the individual investments. One of the most basic principles of finance is that diversification leads to a reduction in risk unless there is a perfect correlation between the returns on the portfolio investments. It is a measure of total risk of the portfolio and an important input in calculation of Sharpe ratio. The standard deviation for the list will appear in the cell you selected.Portfolio standard deviation is the standard deviation of a portfolio of investments. Once you have entered the range for your list, click on OK at the bottom of the dialog box. Instead of typing the range, you can also move the cursor to the beginning of the set of scores you wish to use and click and drag the cursor across them. For example, if your data were in column A from row 1 to 13, you would enter A1:A13. After you have made your selections, click on OK at the bottom of the dialog box.Įnter the cell range for your list of numbers in the Number 1 box. (Note: If your data are from a population, click on STDEV.P).
Select STDEV.S (for a sample) from the the Statistical category. Place the cursor where you wish to have the standard deviation appear and click the mouse button.Select Insert Function (f x) from the FORMULAS tab. The mean (average) for the list will appear in the cell you selected. If a data set had more than one mode, Excel would only display one of them.)Įnter the cell range for your list of numbers in the Number 1 box. (Note: If you want the Median, select MEDIAN. Select AVERAGE from the Statistical category and click OK. Select Insert Function ( f x) from the FORMULAS tab. After the data have been entered, place the cursor where you wish to have the mean (average) appear and click the mouse button. Enter the scores in one of the columns on the Excel spreadsheet (see the example below).
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