Semivariance

What is 'Semivariance'

Semivariance is a measure of the dispersion of all observations that fall below the mean or target value of a data set. Semivariance is an average of the squared deviations of values that are less than the mean. The formula for semivariance is as follows:

Semivariance



Where:
n = the total number of observations below the mean
rt = the observed value
average = the mean or target value of the data set

BREAKING DOWN 'Semivariance'

Semivariance is similar to variance; however, it only considers observations below the mean. A useful tool in portfolio or asset analysis, semivariance provides a measure for downside risk. While standard deviation and variance provide measures of volatility, semivariance only looks at the negative fluctuations of an asset. By neutralizing all values above the mean, or an investor's target return, semivariance estimates the average loss that a portfolio could incur.

For risk averse investors, solving for optimal portfolio allocations by minimizing semivariance would limit the likelihood of a large loss.

RELATED TERMS
  1. Semi-Variable Cost

    A cost composed of a mixture of fixed and variable components. ...
  2. Semideviation

    A measure of dispersion for the values of a data set falling ...
  3. Operating Cost

    Expenses associated with the maintenance and administration of ...
  4. Scattergraph Method

    A visual technique for separating the fixed and variable elements ...
  5. Objective Probability

    The probability that an event will occur based an analysis in ...
  6. Overhead

    An accounting term that refers to all ongoing business expenses ...
Related Articles
  1. Markets

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  2. Trading

    Trading With Gaussian Models Of Statistics

    The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications.
  3. Managing Wealth

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.
  4. Personal Finance

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
  5. Managing Wealth

    Calculating Portfolio Variance

    Portfolio variance is a measure of a portfolio’s volatility, and is a function of two variables.
  6. Managing Wealth

    Standard Deviation

    Learn about how standard deviation is applied to the annual rate of return of an investment to measure the its volatility.
  7. Investing

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  8. Investing

    Volatility

    Learn more about this statistical measure and how it affects the dispersion of returns.
  9. Investing

    How Investment Risk Is Quantified

    FInancial advisors and wealth management firms use a variety of tools based in Modern portfolio theory to quantify investment risk.
  10. Markets

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
RELATED FAQS
  1. How are semi-variable costs similar to fixed costs?

    Learn what fixed costs are, what semi-variable costs are, why semi-variable costs are similar to fixed costs, and how semi-variable ... Read Answer >>
  2. What are the variables in variable costs?

    Learn about variable costs. Explore how and why these costs may fluctuate, as well as ways in which they may differ from ... Read Answer >>
  3. Do minimum wage laws make labor a fixed or variable cost?

    Find out why labor is a classified as a semi-variable cost by the minimum wage laws; labor has elements of both fixed costs ... Read Answer >>
  4. What is the difference between standard deviation and average deviation?

    Understand the basics of standard deviation and average deviation, including how each is calculated and why standard deviation ... Read Answer >>
  5. What does standard deviation measure in a portfolio?

    Dig deeper into the investment uses of, and mathematical principles behind, standard deviation as a measurement of portfolio ... Read Answer >>
  6. What is the difference between standard deviation and variance?

    Understand the difference between standard deviation and variance; learn how each is calculated and how these concepts are ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center