Portfolio Return Risk Calculator Guide
Use this portfolio return risk calculator to estimate expected portfolio return, portfolio standard deviation, Sharpe ratio, value at risk, diversification benefit, and risk contribution by asset.
How to use the portfolio return risk calculator
Enter each asset in the portfolio, including its allocation weight, expected annual return, and standard deviation. The total asset weights should equal 100 percent.
Add correlations between assets when you know them. Correlation is important because two assets with similar standalone risk can produce very different portfolio risk depending on how closely they move together.
Portfolio expected return formula
Portfolio expected return is the weighted average of each asset return. The formula is: Portfolio Return = sum of each asset weight multiplied by its expected return.
For example, a portfolio with 60 percent in an asset expected to return 8 percent and 40 percent in an asset expected to return 12 percent has an expected return of 9.6 percent before fees and taxes.
Portfolio risk formula
Portfolio risk is based on variance, standard deviation, asset weights, individual asset volatility, and the correlation between assets. Lower or negative correlation can reduce total portfolio volatility.
This is why diversification can lower risk even when the portfolio still includes volatile assets. The calculator shows portfolio standard deviation and each asset contribution to risk.
Sharpe ratio and risk adjusted return
The Sharpe ratio compares excess return to portfolio risk. It is calculated as portfolio return minus the risk-free rate, divided by portfolio standard deviation.
A higher Sharpe ratio generally means stronger risk-adjusted return. A low or negative Sharpe ratio can mean the portfolio is not being compensated well for the volatility it carries.
Value at risk and diversification benefit
Value at risk estimates a downside return threshold at a selected confidence level. This calculator includes a 95 percent VaR estimate and conditional VaR approximation to help frame downside risk.
Diversification benefit compares the diversified portfolio risk with the risk of assets viewed separately. A higher benefit suggests the portfolio mix is reducing volatility through imperfect correlation.
- Use realistic expected returns instead of best-case assumptions.
- Review correlation assumptions during market stress.
- Compare Sharpe ratio across similar portfolios.
- Watch assets with high risk contribution relative to their weight.
- Rebalance when actual weights drift far from target allocation.