Do your two holdings actually diversify each other?
Portfolio risk is not the average of the pieces; it is variances plus covariance, the raw co-movement between assets. This template computes the matrix the way the textbooks define it.
Finance Starter Statistics free
After you install, this is the model to open.
How Two Assets Move Together
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
The answer
The matrix in three numbers:
- Index variance
- 0.130
- Tech variance
- 0.818
- Covariance
- +0.322
The stock is roughly six times more variable than the index, and the covariance is positive and large: they rise and fall together (correlation 0.987), so holding both is less diversified than it looks. These entries drop straight into the classic portfolio-risk formula: weights squared times variances, plus twice the weights times the covariance. For the scale-free view, run Correlation on the same range.
The model
Ten daily percentage returns for a broad index fund and a single tech stock. The diagonal of the output holds each asset's variance; the off-diagonal holds their covariance, in percent squared.
| Index fund returns | -0.5% to +0.7% |
| Tech stock returns | -1.4% to +1.6% |
| Variances (diagonal) | calculated |
| Covariance (off-diagonal) | calculated |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Will you run out of cash this quarter?Will the Cash Last Thirteen Weeks?
- What are the odds you breach the covenant?How Close Is the Covenant?
- Every line looks fine. Will the year still go over?Will the Budget Hold?
- How far could next year miss the revenue plan?What Will Next Year's Revenue Be, as a Range?
- How much of your risk is just the exchange rate?What Does the Exchange Rate Do to Profit?
- Does growth or margin move your profit more?How Do Growth and Margin Move EBITDA Together?
Every model like this one, and the method behind them: Statistics in Google Sheets.