You probably knew that Microsoft's Excel spreadsheet program is a fine tool for keeping track of your investments in an organized manner, enabling you to see and sort positions, including entry price, periodic closing prices and returns. But actually, Excel can do much more than serve as a glorified financial statement. It can automatically calculate metrics such as an asset's or a portfolio's standard deviation, percentage of return, and overall profit and loss.

Let's look at how Excel can be used to enhance one's investment activities.

key takeaways

  • Excel spreadsheets can not only keep track of investments but calculate performance and degree of volatility.
  • Excel can calculate the difference of an asset's current price minus the entry price.
  • Excel can calculate the percentage return on an asset, and assess profit and loss.
  • Particularly helpful Excel feature is its ability to calculate standard deviation, a complex formula that assesses risk.

Tracking Investments with Excel

An Excel spreadsheet can be used in a number of ways to keep track of an investor's holdings. The first step is to decide what data you would like to include. Figure 1 shows an example of a simple Excel spreadsheet that tracks one investment's data, including date, entry, size (how many shares), closing prices for the dates specified, the difference between the closing price and the entry price, the percentage return, profit and loss for each periodic closing price, and the standard deviation. A separate sheet in an Excel workbook can be used for each stock.

Figure 1: Excel spreadsheet showing data from one trading instrument (McGraw Hill).

Creating Difference Formulas in Excel

Some values in the spreadsheet, however, must be manually calculated, which is time-consuming. However, you can insert a formula into a cell to do the work for you. To calculate the difference of an asset's current price minus the entry price, for instance, click in the cell where you would like the difference to appear.

Next, type the equals (=) sign and then click in the cell containing the current price. Follow this with a minus sign and then click in the cell that contains the entry price. Then click enter and the difference will appear. If you click on the lower right corner of the cell until you see what looks like a dark plus sign (without little arrows on it), you can drag the formula to the other appropriate cells to find the difference for each data set.

Creating Percent Return Formulas in Excel

The percent return is the difference of the current price minus the entry price, divided by the entry price: (price-entry) ÷ entry. The percent return calculation is made by, once again, select the cell where you would like the value to appear, then typing the equal sign. Next, type an open parenthesis and click in the cell that has the current price, followed by a minus sign, the entry price, and a close parenthesis.

Next, type a forward slash (to represent division) and then click in the entry price cell again. Press enter and the percent return will appear. You may need to highlight the column, right-click, and select Format Cells to select "Percentage" under the number tab to have these values appear as percentages. Once you have the formula in one cell, you can click and drag (as above) to copy the formula into the corresponding cells.

Creating Profit/Loss Formulas in Excel

The profit and loss is the difference multiplied by the number of shares. To create the formula, click in the cell where you want the value to appear. Next, type the equals sign and then click in the cell that contains the difference (see above). Then, type the asterisk symbol (*) to represent multiplication and then click in the cell that contains the number of shares. Press enter and you will see the profit and loss for that data. You may need to highlight the column, right-click, and select Format Cells, then select the currency to set the column to display as a dollar amount. You can then select, click and drag the formula to copy it in the other corresponding cells.

Creating Standard Deviation Formulas in Excel

The mainstay of modern portfolio theory, the standard deviation for a data set can reveal important information regarding an investment's risk. The standard deviation is simply the measure of how far returns are from their statistical average; in other words, it allows investors to determine the above-average risk or volatility of an investment. The standard deviation of returns is a more accurate measure than looking at periodic returns because it takes all values into account.

The lower the standard deviation value of an asset or a portfolio, the lower its risk.

The standard deviation calculation is a complex, time-consuming mathematical equation. Fortunately, a few simple clicks in Excel can provide the same calculation. Even if an investor does not understand the math behind the value, he or she can measure the risk and volatility of a particular stock or the entire portfolio.

To find the standard deviation of a data set, click on the cell where you want the standard deviation value to appear. Next, under the Formulas heading in Excel, select the "Insert Function" option (this looks like "fx"). The Insert Function box will appear, and under "select a category" choose "Statistical." Scroll down and select "STDEV", then click OK. Next, highlight the cells that you want to find the standard deviation for (in this case, the cells in the percent return column; be careful to select only the return values and not any headers). Then click OK and the standard deviation calculation will appear in the cell.

Viewing a Portfolio in Excel

You can compile data from the individual sheets in Excel to get a sense of all holdings at a glance. If you have data on one sheet in Excel that you would like to appear on a different sheet, you can select, copy and paste the data into a new location. In this way, it is easy to import a series of stock's data into one sheet. All of the formulas are the same as in the previous examples, and the standard deviation calculation is based on the percent return of all of the stocks, rather than just a single instrument.

Figure 2 shows data from 11 different stocks, including entry date and price, the number of shares, the current price, the difference between the current price and the entry price, the percent return, the profit and loss, and the overall standard deviation.

Figure 2: Excel spreadsheet showing the compilation of multiple trading symbol's data.

Other Tips for Using Excel

Once a spreadsheet has been formatted with the data that you would like to see, and the necessary formulas, entering and comparing data is relatively simple. but it pays to take the time to set up the sheets exactly how you want them and to eliminate or hide any extraneous data. To hide a column or row of data, highlight the selection, and under the Home tab in Excel, select Format. A dropdown menu appears; select "Hide/Unhide" and choose the option you want. Any data that is hidden can still be accessed for calculations but will not show up in the spreadsheet. This is helpful when creating a streamlined, easy-to-read spreadsheet.

Of course, there are alternatives to setting up the spreadsheet by yourself. A considerable number of commercial products are available from which to choose portfolio management software that works in concert with Excel. An internet search can help interested investors learn about these opportunities.

The Bottom Line

An Excel spreadsheet can be as easy or complex as you want it to be. Personal preference and needs dictate the complexity of the spreadsheet. The key is to understand whatever data you do decide to include so that you are able to gain insight from it.