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How to quantify the risk in an investment portfolio? |
How to quantify the risk in an investment portfolio? There are various ways to quantify risk in a portfolio, but the industry standard would be to calculate the standard deviation of expected returns. The easiest way to do this would be to take a five year set of returns and take a dollar weigted rate of return for each year. Once you have these as a percentage you would then plug them into excel and use the standard deviation function accross all returns for all of your stocks. What this figure will tell you is within plus or minus one standard deviation or a 66% window, you could expect to earn a certain percentage gain or loss on your portfilio. You may be seeing that you have sharp gains over certain periods of time but if they do not persist then this calculation will allow you to view what input that particular investment has made to your overall portfolio. |
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