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Portfolio variance definition

While the original focus of Modern Portfolio Theory was on portfolio variance, the community of practitioners has been more comfortable with standard deviation.


Portfolio variance is a measure of the riskiness of a portfolio. It can be measured using returns-based analysis by squaring the differences from the average return and dividing by the number of observations. It can also be measured using holdings-based analysis by taking the sum of the weights squared times each cell of the covariance matrix.

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Portfolio variance is easier to interpret than portfolio standard deviation because the units are measured in returns. | True or False?


In a Sentence

Eve:  And finally, take the square-root of portfolio variance .
Liz:  Yes, and don't forget to do the same to units of returns-squared.


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portfolio variance
risk measure
stock portfolio
covariance matrix
portfolio performance
risk modeling
financial modeling
performance attribution