Variance
The average of the squared deviations of returns from their mean.
Formula
Variance = Sum of (Return - Mean Return) squared / Number of Observations
Unit
%
In depth
Variance is the square of standard deviation, and squaring is what makes portfolio mathematics work: variances combine through covariances in a way standard deviations cannot, which is the entire basis of modern portfolio theory. The cost is interpretability, since variance is in squared units and cannot be compared directly with a return. Squaring also gives large deviations disproportionate weight, so a single extreme observation dominates the measure. For reporting, take the square root and use standard deviation; for computation across a portfolio, variance is the working quantity.
Worked example
The same returns of 12%, -8%, 15%, 4% and -3% have squared deviations of 64, 144, 121, 0 and 49. Variance is 378 / 5 = 75.6, whose square root is the 8.7% standard deviation.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Variance” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.