The Portfolio Risk Estimator calculates expected return and volatility for a two-asset portfolio using asset weights, individual volatility estimates, and correlation. It also shows a simple return-to-risk ratio using a user-entered risk-free rate. The key benefit is seeing how correlation changes portfolio volatility. Two risky assets can produce lower combined volatility when their returns do not move together, but the estimate remains dependent on historical or assumed inputs.
Asset B automatically receives the remainder to total 100%.
Use expected annual returns for both assets.
Use standard deviation estimates expressed as percentages.
Enter a value from -1 to 1 describing how the assets move together.
Compare portfolio volatility with each asset and review the return-to-risk ratio cautiously.
Expected return = wA × rA + wB × rB
Portfolio variance = wA²σA² + wB²σB² + 2wAwBσAσBρ
Portfolio volatility = square root of portfolio variance
ρ is correlation and must be between -1 and 1.
Use the result as an estimate based on the values and assumptions entered.
Changing an input updates the result automatically.
Given: 60% in Asset A with 8% return and 15% volatility; 40% in Asset B with 4% return and 7% volatility; correlation 0.20.
Calculation: Expected return = 0.60 × 8% + 0.40 × 4% = 6.4%. The covariance term is included in the variance formula.
Result: Estimated portfolio volatility is about 10.0%.
It estimates the dispersion of returns, not the maximum possible loss.
Lower correlation can reduce combined volatility even when both assets are individually risky.
Yes. Correlations can rise during stressed markets, reducing diversification benefits.
No. It is a two-asset model; larger portfolios require a covariance matrix.
No. It is only one summary measure and depends on uncertain assumptions.