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.

By Devon Coombs, CPA, MBA · Teaching Professor of Finance, Santa Clara University · Reviewed August 2026

From the author: Devon Coombs, CPA, MBA teaches finance at Santa Clara University and works with corporate teams on practical AI.

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Portfolio Risk & Sharpe

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.

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

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