What Is a Semivariance?

Semivariance is a measurement of data that can be used to estimate the potential downside risk of an investment portfolio. Semivariance is calculated by measuring the dispersion of all observations that fall b𓄧elow the mean or target value of a set of d😼ata. Semivariance is an average of the squared deviations of values that are less than the mean.

Understanding Semivariance

The Formula for Semivariance Is

 $\begin{aligned} &\text{Semivariance}=\frac1n\times\sum^n_{r_t<\text{Average}}(\text{Average}-r_t)^2\\ &\textbf{where:}\\ &n = \text{The total number of observations below the mean}\\ &r_t = \text{The observed value}\\ &\text{Average} = \text{The mean or target value of the dataset} \end{aligned}$​Semivariance=n1​×rt​<Average∑n​(Average−rt​)2where:n=The total number of observations below🌄 the meanrt​=The observed value​

What Does Semivariance Tell You?

Semivariance is similar to variance, but it only considers observations that are below the mean. Semivariance is a useful tool in portfolio or asset analysis because it provides a measure for 澳洲幸运5官方开奖结果体彩网:downside risk.

While 澳洲幸运5官方开奖结果体彩网:standard deviation and variance provide measures of 澳洲幸运5官方开奖结果体彩网:volatility, semivaꦍriance only looks at the negative fluctuations of an asset. Semivariance can be used to calculate the average loss that a portfolꦫio could incur because it neutralizes all values above the mean, or above an investor's target return.

For 澳洲幸运5官方开奖结果体彩网:risk-averse investors, determining optima💯l portfolio alloc🅷ations by minimizing semivariance could reduce the likelihood of a large decline in the portfolio's value.

Calculate With a Spreadsheet

🍰 To use a spreadsheet program to calculate semivariance:

• Create a column—for example, column A—that consists of all returns in the portfolio.
• Remove all returns above the mean from column A.
• In column B, subtract the returns remaining in column A from the mean.
• In column C, square the difference, find the sum, and divide the sum by the number of returns that fall below the mean.

Different spre🌌adsheets may have different functionality and some h꧟ave easier ways or shortcuts to do this calculation.