ABSTRACT
Welcome to our section on risk, in which we calculate the standard deviation, skewness and kurtosis of portfolio returns. We will spend most of our time on standard deviation because it functions as the main measure of portfolio risk. To learn more about why, head back to 1959 and read Markowitz’s monograph Portfolio Selection: Efficient Diversification of Investments,1 which talks about means and variances of returns. In short, standard deviation measures the extent to which a portfolio’s returns are dispersed around their mean. If returns are more dispersed, the portfolio has a higher standard deviation and is seen as riskier or more volatile.2
