1. Learn
    2. /
  2. Courses
    3. /
  3. Introduction to Portfolio Risk Management in Python

Exercise

Portfolio standard deviation

In order to calculate portfolio volatility, you will need the covariance matrix, the portfolio weights, and knowledge of the transpose operation. The transpose of a numpy array can be calculated using the .T attribute. The np.dot() function is the dot-product of two arrays.

The formula for portfolio volatility is:

$$ \sigma_{Portfolio} = \sqrt{ w_T \cdot \Sigma \cdot w } $$

  • \( \sigma_{Portfolio} \): Portfolio volatility
  • \( \Sigma \): Covariance matrix of returns
  • w: Portfolio weights (\( w_T \) is transposed portfolio weights)
  • \( \cdot \) The dot-multiplication operator

portfolio_weights and cov_mat_annual are available in your workspace.

Instructions

100 XP

Calculate the portfolio volatility assuming you use the portfolio_weights by following the formula above.