`PV = (AW1^2 * AV1 + AW2^2 * AV2) + 2*AV1*AV2*CV`

Enter a value for all fields

The Portfolio Variance with Two Assets calculator computes the portfolio variance of securities.

INSTRUCTIONS: Enter the following:

• (AW₁) Weight of Aasset 1
• (AV₁) Variance of Asset 1
• (AW₂) Weight of Asset 2
• (AV₂) Variance of Asset 2
• (CV) Covariance of the Two Assets.

Portfolio Variance with Two Assets (PV): The calculator returns the variance.

The Math / Science

The formula for Portfolio Variance with Two Assets is:

    `PV = (AW1^2 * AV1 + AW2^2 * AV2) + 2*AV1*AV2*CV`

where:

• PV = Portfolio Variance
• AW1 = weight of asset 1.
• AV1 = variance of asset 1.
• AW2 = weight of asset 2.
• AV2 = variance of asset 2.
• CV = covariance of the two assets.

Relevance

The combined portfolio has lower risk (20.16%) than Asset A alone (25%), due to diversification, even with positive correlation.

Hospitatlity Industry Accounting Metrics

• Variance in Net Income
• Percent in Variance in Net Income based on the net income from two periods
• Portfolio Variance with Two Assets

Resource:

• Dopson, Lea R., and David K. Hayes. Managerial Accounting for the Hospitality Industry. Hoboken, NJ: Wiley, 2009. Print.