Portfolio Standard Deviation - Meaning, Formula, Examples, How to Calculate?

In this video on Portfolio Standard Deviation, here we discuss its definition and learn how to calculate the standard deviation of the portfolio (three assets).

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐃𝐞𝐯𝐢𝐚𝐭𝐢𝐨𝐧?
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Portfolio Standard deviation is the standard deviation of rate of return on an investment portfolio and is used to evaluate an investment's intrinsic volatility

𝐈𝐧𝐭𝐞𝐫𝐩𝐫𝐞𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐃𝐞𝐯𝐢𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨
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#1 - A high standard deviation from the portfolio shows the high risk from the portfolio and the return is more volatile in nature as well as unstable.

#2 - A small standard deviation portfolio means less volatility and more stability in portfolio yields and is a very helpful economic metric when comparing various portfolios.

𝐒𝐭𝐞𝐩𝐬 𝐭𝐨 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞 𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐃𝐞𝐯𝐢𝐚𝐭𝐢𝐨𝐧
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Step 1 - Find the standard deviation in the portfolio for each asset.

Step 2 - Find the weight of each asset in the overall Portfolio.

Step 3 - Find the correlation between the Portfolio's assets.

Step 4 - Apply the values in the above-mentioned to derive the standard deviation formula of a two Asset Portfolio.

To know more about the 𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐃𝐞𝐯𝐢𝐚𝐭𝐢𝐨𝐧, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/portfo...

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