What is a good standard deviation for a portfolio?

Standard deviation allows a fund’s performance swings to be captured into a single number. For most funds, future monthly returns will fall within one standard deviation of its average return 68% of the time and within two standard deviations 95% of the time.

What is a low risk standard deviation?

When prices move wildly, standard deviation is high, meaning an investment will be risky. Low standard deviation means prices are calm, so investments come with low risk.

Can the standard deviation of a portfolio be zero?

The mid-point between A and B represents the mean return with no variability in returns. The overall standard deviation of this portfolio is zero. This is considered a risk-free portfolio.

What is minimum portfolio variance?

Minimum Variance Portfolio is the technical way of representing a low-risk portfolio. It carries low volatility as it correlates to your expected return (you’re not assuming greater risk than is necessary).

What should standard deviation be for minimum variance portfolio?

You could achieve a standard deviation of 2% while still earning a 4% expected return by lending some of your money at the risk-free rate and investing the rest in the minimum variance portfolio (see letter b on the graph).

How can I reduce the variance of my portfolio?

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. Get our best strategies, tools, and support sent straight to your inbox.

Which is lower portfolio variance or weighted average?

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:

What does it mean when standard deviation is low?

A low standard deviation means you can expect to receive the same rate of return each year like money market funds. High standard deviations indicate more volatile investments with unstable rates of returns like penny stocks.