# What type of risk does Standard deviation measures?

## What type of risk does Standard deviation measures?

One of the most common methods of determining the risk an investment poses is standard deviation. Standard deviation helps determine market volatility or the spread of asset prices from their average price. When prices move wildly, standard deviation is high, meaning an investment will be risky.

What does standard deviation measure in finance?

Standard deviation is the statistical measure of market volatility, measuring how widely prices are dispersed from the average price. If prices trade in a narrow trading range, the standard deviation will return a low value that indicates low volatility.

What does standard deviation represent?

Standard deviation tells you how spread out the data is. It is a measure of how far each observed value is from the mean. In any distribution, about 95% of values will be within 2 standard deviations of the mean.

### Why is standard deviation important?

Standard deviations are important here because the shape of a normal curve is determined by its mean and standard deviation. The mean tells you where the middle, highest part of the curve should go. The standard deviation tells you how skinny or wide the curve will be.

What does a higher standard deviation mean?

A standard deviation (or σ) is a measure of how dispersed the data is in relation to the mean. Low standard deviation means data are clustered around the mean, and high standard deviation indicates data are more spread out.

What number is a high standard deviation?

For an approximate answer, please estimate your coefficient of variation (CV=standard deviation / mean). As a rule of thumb, a CV >= 1 indicates a relatively high variation, while a CV considered low.

## What does a small standard deviation mean?

A low standard deviation indicates that the values tend to be close to the mean (also called the expected value) of the set, while a high standard deviation indicates that the values are spread out over a wider range. It is algebraically simpler, though in practice less robust, than the average absolute deviation.

What is an example of a small standard deviation?

For example, a weather reporter is analyzing the high temperature forecasted for two different cities. A low standard deviation would show a reliable weather forecast. The mean temperature for City A is 94.6 degrees, and the mean for City B is 86.1 degrees.

What does a standard deviation of 0.7 mean?

STANDARD DEVIATION indicates the spread of scores from the Mean 0.7 value is less so the spread of the scores is less indicating the scores very close to the Mean. Variance sqare of Sd = 0.7 ×0.7 =0..49.