What does the new volatility formula for a portfolio aim to quantify?

The new volatility formula for a portfolio focuses on quantifying the variance of the portfolio, which takes into account not just the individual volatilities of different investments but also how those investments interact with one another through their correlations. By understanding how different assets behave in relation to each other, the formula captures a more holistic view of the portfolio's risk profile.

Calculating variance this way allows for the assessment of risk in a way that reflects the diversification effects; if two investments are negatively correlated, they may reduce overall portfolio risk compared to when they are considered in isolation. This provides a more accurate risk assessment for the portfolio as a whole, rather than just summing the individual risks of each security.

Market volatility is not directly addressed by this formula, nor does it look at the total dollar value at risk or the volatility of individual stocks in isolation. The emphasis here is on the relationships between the assets in the portfolio and how they contribute collectively to the overall risk.