Portfolio Risk Calculator
This portfolio risk calculator measures how much your mix could swing and how much return you earn for that risk. Enter your stock, bond, and cash amounts in the calculator above.
It reports expected return, volatility, and the Sharpe ratio in seconds. Higher return does not always mean a better deal, and this page shows why.
To plan the mix itself, try the asset allocation calculator. If most of that risk sits in one stock rather than a diversified mix, see concentrated stock position risk for how to size and reduce it.
How it's calculated
Volatility is the standard deviation of returns. It measures how far results tend to swing above and below the average. A higher number means a bumpier ride. The portfolio risk calculator blends the volatility of each holding to estimate your portfolio's overall swing.
The Sharpe ratio measures return per unit of risk. The formula is (expected return − risk-free rate) ÷ volatility. We use a 2.5% risk-free rate. A higher Sharpe ratio means you are paid more for each unit of risk you take. The figures here are long-run model assumptions: stocks 10% return and 16% volatility, bonds 4% and 5%, cash 2.5% and 1%. They are estimates, not guarantees. To go deeper, see the expected return calculator or test the 60/40 portfolio calculator.
A worked example
Compare two $100,000 portfolios over 20 years. The aggressive mix holds $90,000 in stocks and $10,000 in cash (90% / 10%).
It has a 9.25% expected return, 14.40% volatility, and a 0.47 Sharpe ratio. Its 20-year projection is about $586,717, but a typical year ranges from roughly $94,850 to $123,650.
The conservative mix holds $20,000 in stocks, $50,000 in bonds, and $30,000 in cash (20% / 50% / 30%). It has a 4.75% expected return, 4.30% volatility, and a 0.52 Sharpe ratio.
The aggressive mix earns more, yet the conservative mix has the higher Sharpe ratio. It earns more return for each unit of risk.
Common mistakes to avoid
- Chasing the highest expected return while ignoring volatility. A bigger number can hide a much rougher ride.
- Treating volatility as the only measure. The Sharpe ratio shows whether that risk actually pays off.
- Assuming the model figures are guaranteed. They are long-run assumptions, and real returns vary year to year.
- Forgetting that adding bonds and cash can raise your Sharpe ratio even as it lowers expected return.
- Ignoring your time horizon. A wide one-year range matters more if you need the money soon.
Frequently asked questions
What does a portfolio risk calculator measure?
A portfolio risk calculator measures volatility and risk-adjusted return. Volatility shows how much your mix could swing. The Sharpe ratio shows how much return you earn for that risk. The calculator above reports both, plus your expected return.
What is a good Sharpe ratio?
A higher Sharpe ratio is better because it means more return per unit of risk. In our example, the conservative mix scores 0.52 and the aggressive mix scores 0.47. So the conservative, diversified mix is more efficient even though it earns less.
Does a higher expected return mean a better portfolio?
Not always. The aggressive mix has a 9.25% expected return versus 4.75% for the conservative mix. But the conservative mix has the higher Sharpe ratio, 0.52 versus 0.47. It earns more return for each unit of risk taken.
What is volatility in investing?
Volatility is the standard deviation of returns. It measures how far results swing above and below the average. Higher volatility means bigger swings and more risk. Stocks in our model carry 16% volatility, while cash carries just 1%.
What is portfolio beta, and does this calculator report it?
Beta measures how much a portfolio tends to move relative to the overall market — a beta of 1.0 moves in step with the market, above 1.0 amplifies its swings, below 1.0 dampens them. This calculator reports volatility (standard deviation) and the Sharpe ratio rather than beta, since those don't require picking a specific market-index benchmark to compare against. Volatility answers a similar question — how much your mix swings in absolute terms — without that extra assumption.
What are portfolio correlation, drawdown, CAGR, and XIRR?
These are different lenses on portfolio performance than what this calculator reports. Correlation measures how closely two holdings move together, from -1 (perfectly opposite) to 1 (perfectly in sync) — low correlation between holdings is what actually reduces portfolio-level volatility. Drawdown is the percentage decline from a peak to the lowest point that follows it. CAGR (compound annual growth rate) smooths a multi-year return into one steady annual rate. XIRR extends that same idea to handle irregular contribution and withdrawal timing, which a simple CAGR can't do. None of these require anything this calculator doesn't already model — allocation, expected return, and volatility — but each highlights a different angle on the same portfolio.
How do I know if my portfolio is properly diversified?
Diversification isn't about holding many positions — it's about holding positions that don't all move together. A portfolio spread across 20 similar tech stocks is far less diversified than one spread across stocks, bonds, and cash in different sectors, even with fewer total holdings. Use the asset allocation calculator to check your stock/bond/cash mix against a model allocation for your goals, per the SEC's guidance on diversification.
Sources
We prioritize primary sources for rules, formulas, rates, limits, and definitions. See our calculator methodology and editorial policy.