Explaining Portfolio Standard Deviation in Excel

Here is a video going over finding the standard deviation of an asset portfolio in Excel and explaining the use of MMULT and TRANSPOSE functions in portfolio analysis.

Effectively, we use =SQRT(MMULT(MMULT(ast_weights_rows, cov_matrix), ast_weights_cols)), where ast_weight_cols = TRANSPOSE(ast_weights_rows) to get our portfolio standard deviation, but I explore why and provide the intuition on the linear algebra for matrix multiplication to get there. So that we fully understand what is going on.

We need to use transpose because matrix multiplication iterates through (in MMULT(mat1, mat2)) the items in the rows of matrix 1 to multiply by the items in the columns of matrix 2, so columns per row in matrix 1 == rows per column in matrix 2 must be true.

I go through all three ways to handle this in Excel going to the simplest function at the end (MMULT) and give an example case use of it in portfolio research.

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