What is portfolio risk?
How much the value of your combined investments tends to swing, measured as volatility. Lower volatility means a steadier ride.
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Portfolio Risk Impact Calculator
Estimate a two-asset portfolio's volatility from each asset's weight and risk and their correlation — showing how diversification lowers total risk.
σp = √(w1²σ1² + w2²σ2² + 2 w1 w2 ρ1₂ σ1 σ2)
Frequently asked questions
What is diversification?
Spreading money across assets that do not move in lockstep. When one zigs and another zags, the combined swing is smaller than either alone, which this calculator demonstrates.
What does correlation do here?
It measures how two assets move together, from -1 (opposite) to +1 (identical). The lower the correlation, the bigger the diversification benefit, because the assets cushion each other.
Why is portfolio risk less than the average of the parts?
Because of that cushioning. Unless the assets are perfectly correlated, combining them cancels out some of the swings, so total risk falls below the weighted average.
Is this the real formula the professionals use?
Yes, this is the standard two-asset portfolio variance formula from modern portfolio theory. Real portfolios extend it to many assets, but the principle is identical.