The concept of portfolio variance is an integral factor when it comes to analyzing the performance of a portfolio in Forex trading. This article will explore the key elements of understanding the formula for portfolio variance in Forex, and how it can be used to help maximize profits and reduce risks. The variance of a portfolio is the weighted average of the individual variances of each security in the portfolio, where the weights represent the investment allocation in each security.
Variance of portfolio = w1^2*σ1^2 + w2^2*σ2^2…wn^2*σn^2
where:
w1,…,wn= weight of each security in the portfolio
σ1,…,σn= variance of each security in the portfolio
