What is 'Portfolio Variance'
Portfolio variance is the measurement of how the actual returns of a group of securities making up a portfolio fluctuate. Portfolio variance looks at the standard deviation of each security in the portfolio as well as how those individual securities correlate with the others in the portfolio. In other words, portfolio variance looks at the covariance or correlation coefficient for the securities in the portfolio. Generally, the lower the correlation between securities in a portfolio, the lower the portfolio variance.
BREAKING DOWN 'Portfolio Variance'
Portfolio variance is calculated by multiplying the squared weight of each security by its corresponding variance and adding two times the weighted average weight multiplied by the covariance of all individual security pairs. Modern portfolio theory says that portfolio variance can be reduced by choosing asset classes with a low or negative correlation, such as stocks and bonds. This type of diversification is used to reduce risk.
Portfolio variance = (weight(1)^2*variance(1) + weight(2)^2*variance(2) + 2*weight(1)*weight(2)*covariance(1,2)

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How can I measure portfolio variance?
Find out more about portfolio variance, the formula to calculate portfolio variance and how to calculate the variance of ... Read Answer >> 
Is variance good or bad for stock investors?
Learn how high variance stocks are good for some investors and how diversified portfolios can reduce variance without compromising ... Read Answer >> 
What is the difference between standard deviation and variance?
Understand the difference between standard deviation and variance; learn how each is calculated and how these concepts are ... Read Answer >> 
How is an unfavorable variance discovered?
Learn how unfavorable variance is discovered through defining budget numbers, such as standard rates for labor and materials, ... Read Answer >> 
How reliable is the mean variance analysis of an investment?
Learn how mean variance analysis is used to determine the historical volatility of an asset and how future volatility may ... Read Answer >> 
How is portfolio variance reduced in Modern Portfolio Theory?
Learn about modern portfolio theory, specifically what it asserts about asset allocation and managing portfolio risk through ... Read Answer >>