Portfolio Risk & Sharpe

Calculates two-asset portfolio volatility with correlation, the diversification benefit versus the weighted average, and the Sharpe ratio, plus an equal-weight ladder showing risk decline as assets are added. Inputs are the weight in each asset, the two volatilities, the correlation, the portfolio return, and the risk-free rate.

Interactive Tool

Two-asset portfolio

Weight in Asset A

Asset A volatility (σ₁)

Asset B volatility (σ₂)

Correlation (ρ)

Sharpe ratio

Portfolio return

Risk-free rate

Weighted-avg risk

12.00%

if ρ = 1.0

Portfolio σ

9.75%

with correlation

Diversification benefit

2.25 pp

weighted avg − σ

Sharpe ratio = (return − risk-free) ÷ σ

0.72

Equal-weight ladder, σ × √((1 − ρ) ÷ n + ρ)

Each asset’s σ

Average correlation

1 asset

12.00%

2 assets

9.67%

4 assets

8.27%

10 assets

7.30%

many assets

6.87%

Adding imperfectly correlated assets drives risk down toward a floor of 6.57% (σ × √ρ), diversification removes asset-specific risk but not the shared market risk.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.