The Portfolio Variance with Two Assets calculator computes the portfolio variance of securities.
INSTRUCTIONS: Enter the following:
- (AW1) This is weight of asset 1.
- (AV1) This is the variance of asset 1.
- (AW2) This is weight of asset 2.
- (AV2) This is the variance of asset 2.
- (CV) This is the covariance of the two assets.
Portfolio Variance with Two Assets (PV): The calculator returns the variance.
The Math / Science
The formula for Portfolio Variance with Two Assets is:
`PV = (AW1^2 * AV1 + AW2^2 * AV2) + 2*AV1*AV2*CV`
where:
- PV = Portfolio Variance
- AW1 = weight of asset 1.
- AV1 = variance of asset 1.
- AW2 = weight of asset 2.
- AV2 = variance of asset 2.
- CV = covariance of the two assets.
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Resource:
- Dopson, Lea R., and David K. Hayes. Managerial Accounting for the Hospitality Industry. Hoboken, NJ: Wiley, 2009. Print.