![]() In a finance article published in a magazine in those days, he read that the not-all-eggs-in-one-basket approach to investing is useful because it helps reduce risk. A year back he started following the stocks. Multi-Asset Portfolio SD Calculator: Asset Ρ CA = correlation coefficient between returns on asset C and asset A. Ρ BC = correlation coefficient between returns on asset B and asset C. 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. ![]() ![]() Portfolio standard deviation is the standard deviation of a portfolio of investments.
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