DEFINITION of 'Standard Deviation'
1. A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance.
2. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.
VIDEO
BREAKING DOWN 'Standard Deviation'
Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.
Want to know more about risk measurement? Please read Standard Deviation & Value At Risk and The Uses And Limits Of Volatility

Variance
The spread between numbers in a data set, measuring Variance ... 
Analysis Of Variances  ANOVA
An analysis of the variation between all of the variables used ... 
Standard Error
The standard deviation of the sampling distribution of a statistic. ... 
Mean
The simple mathematical average of a set of two or more numbers. ... 
Coefficient Of Variation  CV
A statistical measure of the dispersion of data points in a data ... 
Covariance
A measure of the degree to which returns on two risky assets ...

Mutual Funds & ETFs
ETF Analysis: iShares MSCI USA Minimum Volatility
Learn about the iShares MSCI USA Minimum Volatility exchangetraded fund, which invests in lowvolatility equities traded on the U.S. stock market. 
Options & Futures
An Introduction To Value at Risk (VAR)
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Mutual Funds & ETFs
ETF Analysis: iShares Russell 1000 Growth
Learn about the iShares Russell 1000 Growth ETF, including how the fund is constructed, its holdings and its strong recent performance. 
Mutual Funds & ETFs
ETF Analysis: iShares Silver Trust
Learn about the iShares Silver Trust, an exchangetraded fund that invests primarily in silver and is affected by risks unique to commodities. 
Markets
Using Historical Volatility To Gauge Future Risk
Use these calculations to uncover the risk involved in your investments. 
Personal Finance
Does Your Investment Manager Measure Up?
These key stats will reveal whether your advisor is a league leader or a benchwarmer. 
Markets
The Uses And Limits Of Volatility
Check out how the assumptions of theoretical risk models compare to actual market performance. 
Fundamental Analysis
Quantitative Analysis Of Hedge Funds
Hedge fund analysis requires more than just the metrics used to analyze mutual funds. 
Investing
Tips For Investors In Volatile Markets
Find out what to look out for when trading during market instability. 
Mutual Funds & ETFs
Understanding Volatility Measurements
How do you choose a fund with an optimal riskreward combination? We teach you about standard deviation, beta and more!

What is the formula for calculating beta?
Beta is a measure used in fundamental analysis to determine the volatility of an asset or portfolio in relation to the overall ... Read Full Answer >> 
What does the information ratio tell about the design of a mutual fund?
The information ratio can tell an investor how well a mutual fund is designed to deliver excess or abnormal returns as well ... Read Full Answer >> 
How can I use Bollinger Bands® to spot options trading opportunities?
Traders can use Bollinger Bands in a couple of different types of trading strategies. The most common strategy is using Bollinger ... Read Full Answer >> 
What does a high information ratio tell an investor about a mutual fund?
A high information ratio tells an investor that the sustained performance of a mutual fund's active manager is high and that ... Read Full Answer >> 
What does Value at Risk (VaR) have to do with maximization of shareholder wealth?
By enabling investors to estimate with high probability the worstcase and bestcase scenarios for the performance of a given ... Read Full Answer >> 
How does my insurance company determine what premiums I have to pay for coverage?
Investors can use a few basic concepts from quantitative analysis, such as standard deviation and beta, to evaluate possible ... Read Full Answer >> 
What is operations management theory and how can it help a business?
Operations management is concerned with controlling the production process and business operations in the most efficient ... Read Full Answer >> 
What is the difference between variance and standard deviation?
Variance and standard deviation are both concepts that help statisticians and financial professionals understand differences ... Read Full Answer >> 
What is the difference between the expected return and the standard deviation of ...
Expected return and standard deviation are two statistical measures that can be used to analyze a portfolio. The expected ... Read Full Answer >> 
What is the difference between the standard error of means and standard deviation?
The standard deviation, or SD, measures the amount of variability or dispersion for a subject set of data from the mean, ... Read Full Answer >> 
How much variance should an investor have in an indexed fund?
An investor should have as much variance in an indexed fund as he is comfortable with. Variance is the measure of the spread ... Read Full Answer >> 
What is RiskMetrics in Value at Risk (VaR)?
RiskMetrics is a methodology that contains techniques and data sets used to calculate the value at risk (VaR) of a portfolio ... Read Full Answer >> 
What are some common measures of risk used in risk management?
Risk management is a crucial process used to make investment decisions. The process involves identifying the amount of risk ... Read Full Answer >> 
How is covariance used in portfolio theory?
Covariance is used in portfolio theory to determine what assets to include in the portfolio. Covariance is a statistical ... Read Full Answer >> 
How can you calculate Value at Risk (VaR) in Excel?
Value at risk (VAR) is a technique used in risk management to measure and quantify the amount of risk associated with an ... Read Full Answer >> 
What does standard deviation measure in a portfolio?
Standard deviation is a mathematical measurement of average variance and features prominently in statistics, economics, accounting ... Read Full Answer >> 
How is standard deviation used to determine volatility?
Though standard deviations can be a useful tool for measuring volatility in numerous financial arenas, including accounting ... Read Full Answer >> 
What is the difference between standard deviation and variance?
Standard deviation and variance, though basic mathematical concepts, play important roles in many areas of the financial ... Read Full Answer >> 
What is the difference between standard deviation and average deviation?
While there are many different ways to measure variability within a set of data, two of the most popular are standard deviation ... Read Full Answer >> 
What is the difference between standard deviation and mean?
Understanding the calculation and interpretation of mathematical fundamentals such as mean and standard deviation is essential ... Read Full Answer >> 
What is the difference between standard deviation and z score?
Though the finance industry can be complex, an understanding of the calculation and interpretation of basic mathematical ... Read Full Answer >> 
What is the difference between a Sharpe ratio and a Traynor ratio?
The Sharpe ratio and the Treynor ratio (both named for their creators, William Sharpe and Jack Treynor), are two ratios utilized ... Read Full Answer >> 
What is a good Sharpe ratio?
The Sharpe ratio is a wellknown and wellreputed measure of riskadjusted return on investment, developed by William Sharpe. ... Read Full Answer >>