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Computing risk for a portfolio with many stocks

Computing risk for a portfolio with many stocks - Microsoft Excel Tutorial

From the course: Excel for Investment Professionals

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Computing risk for a portfolio with many stocks

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- [Teacher] When dealing with a portfolio with more than two assets it's trickier to compute variance, but Excel can still help you with just a few extra steps. I'm in the 03 08 begin Excel file. Now, there's a lot here so we're going to take it step by step. First I'm going to talk about what the different pieces are, then we'll go through and compute the mean return for this portfolio and finally we'll determine what the variance or risk on the portfolio overall is. So to start with, we have what we call a variance covariance matrix. This represents all of the pairs of covariances between the different assets in your portfolio. The covariance on Apple versus Microsoft, on Apple and General Mills, Microsoft and Caterpillar, et cetera. There's six of them for this single portfolio with four assets in it. We also have our returns for these four assets listed down below, and then the weights which represent our investment holdings in each of these four assets. Now, in order to compute…

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