What Is Portfolio Variance

The portfolio variance is what lets you know the risk of your portfolio. The risk associated with a single stock investment judged by calculating its standard deviation. But in order to calculate the risk of your entire portfolio, you need to do portfolio variance.

What exactly is a portfolio? A portfolio is when you are invested into two or more stocks at the same time. When you have more than one number of stocks invested into then this forms a portfolio. The way to calculate the risk of your portfolio is totally different. You need to know how to do this so that you take care of the risks involved.

Variance And Covariance

To understand the portfolio variance you need to know what variance and covariance are. These are statistical measures to help you judge the risk of your portfolio.

The variance of the return of the stock is measured as to how much will the return on the stock vary as compared to its average return that is generated daily.

You need to understand how the daily return gets spread to form the average of the expected return. The variance will let you judge how risky your investment is. When you calculate a large variance amount then this means that the stock is risky. A small variance number indicates that the stock carries less risk.


The covariance is a measure of how two or more than to variables are moving together. It will let you know whether the two variables are moving in sync or moving opposite to each other. When they move together then this means that they are positively correlated. When they move away from each other then this means that they are negatively correlated. If two stock prices will move in the same direction then it is positive covariance. If two stock prices move in the opposite direction then it is negative covariance.

The covariance between the two stocks is calculated as the sum product of the difference between the stocks daily return and the average return across both of the stocks.

Covariance does not tell us the extent to which two stocks are moving together. It just tells us whether two stocks are moving together or not.

Unlike the Crypto Code scam, the portfolio managers here will look to invest in stocks that are negatively correlated. This helps to counterbalance the portfolio and helps to spread the risk.