what is portfolio variance 
portfolio variance is a measurement of risk of how the aggregate actual returns of a set of securities making up a portfolio fluctuate over time this portfolio variance statistic is calculated using the standard deviations of each security in the portfolio as well as the correlations of each security pair in the portfolio investopedia theresa chiechiunderstanding portfolio varianceportfolio variance looks at the co variance or correlation co efficients for the securities in a portfolio generally a lower correlation between securities in a portfolio results in a lower portfolio variance portfolio variance is calculated by multiplying the squared weight of each security by its corresponding variance and adding twice the weighted average weight multiplied by the co variance of all individual security pairs modern portfolio theory says that portfolio variance can be reduced by choosing asset classes with a low or negative correlation such as stocks and bonds where the variance or standard deviation of the portfolio is the x axis of the efficient frontier formula and calculation of portfolio variancethe most important quality of portfolio variance is that its value is a weighted combination of the individual variances of each of the assets adjusted by their co variances this means that the overall portfolio variance is lower than a simple weighted average of the individual variances of the stocks in the portfolio the formula for portfolio variance in a two asset portfolio is as follows 