ProFolio

If 100% of your portfolio was invested in the S&P 500 you would have expected to experience a loss greater than -7.8% (two standard deviations below the mean) in one month 12 times (2.3% times 541 months) over the last 45 plus years or about once every 4 years. Individual companies and some other assets have even higher volatility than the S&P 500. Depending on your risk tolerance this type of risk may be too high. Risk can be lowered through the selection of lower volatil

Correlation, or lack of correlation, is an important factor in portfolio construction. A portfolio constructed of two assets that have similar return and volatility characteristics, will have lower volatility than each of the individual assets if the assets returns are uncorrelated. This makes intuitive sense since as one asset moves up or down, the other asset will move up or down independently - thereby lowering overall volatility. In fact, if each of the assets returns f

From 12/31/71 through 1/31/17 the monthly return and standard deviation, of the S&P 500 was 0.94% and 4.38%. Monthly return is not random and therefore the expected return after 12 months is (1.0094)^12, or 11.88%. The variability in the monthly data is random and therefore the volatility, or standard deviation, accumulates as the square root of the sum of squares. The annual standard deviation is SQRT(12) times the monthly standard deviation or 15.17%. The expected return

Investment portfolios have risk. Downturns occur periodically. Companies grow and mature. Some companies whither and die. Statistics can help you quantify your portfolio's risk. If your portfolio is diversified enough that its monthly returns can be modeled as a normal (Gaussian) distribution or bell curve, then statistics can be used to figure out the probability of different returns. Additionally, although the probability distribution is two sided, positive and negative,