how do you measure a portfolio s risk 
a portfolio s standard deviation of returns or variance is often used as a proxy of overall portfolio risk the standard deviation calculation is not merely a weighted average of the individual assets standard deviations it must also account for the co variance among the different holdings for a two asset portfolio the standard deviation calculation is p w12 12 w22 22 2w1w2cov1 2 1 2the bottom linea portfolio is a cornerstone of investing in the markets a portfolio is composed of the various positions in stocks bonds and other assets held and is viewed as one cohesive unit the portfolio components therefore must work together to serve the investor s financial goals constrained by their risk tolerance and time horizon portfolios can be constructed to achieve various strategies from index replication to income generation to capital preservation regardless of the strategy diversification is seen as a good way to reduce risk without sacrificing the portfolio s expected return 