The number of ways in which 2 numbers can be selected out of $n$ numbers = ${}_2^n C = \frac{n!}{((n-2)! \times 2!)} = \frac{n(n-1)}{2}$

When computing portfolio variance, the covariance for each pair of securities is required. The number of pairs of securities that can be formed out of $n$ securities is computed by the expression $\frac{n(n-1)}{2}$.

Things to Remember

• Portfolio variance is a measure of the dispersion of returns of a portfolio. It takes into account the weights of each security in the portfolio as well as the covariance between the securities.