Standard Deviation


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.


Loading the player...

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

  1. Variance

    The spread between numbers in a data set, measuring Variance ...
  2. Analysis Of Variances - ANOVA

    An analysis of the variation between all of the variables used ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. ...
  4. Mean

    The simple mathematical average of a set of two or more numbers. ...
  5. Coefficient Of Variation - CV

    A statistical measure of the dispersion of data points in a data ...
  6. Covariance

    A measure of the degree to which returns on two risky assets ...
Related Articles
  1. Mutual Funds & ETFs

    The 3 Best and Most Popular Vanguard Index Funds

    Learn about three popular Vanguard Index Funds. See how index funds provide an easy way for investors to gain exposure to the market with low costs.
  2. Mutual Funds & ETFs

    3 Vanguard Funds with the Lowest Fees

    Learn about the top three Vanguard funds that have the lowest expense ratios and follow different investment objectives by investing in equities and bonds.
  3. Mutual Funds & ETFs

    3 Mutual Funds With Russian Exposure

    Learn about the top three mutual funds that focus on investing in Russian equities and other emerging market countries of Eastern Europe.
  4. Mutual Funds & ETFs

    Top 3 Equity Energy Mutual Funds

    Explore detailed analysis of the top three equity energy mutual funds, and learn about the characteristics and suitability of these funds.
  5. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  6. Mutual Funds & ETFs

    3 Fixed Income ETFs in the Mining Sector

    Learn about the top three metals and mining exchange-traded funds (ETFs), and explore analyses of their characteristics and how investors can benefit from these ETFs.
  7. Mutual Funds & ETFs

    Top 5 TIPS ETFs

    Learn about exchange-traded funds that invest in U.S. Treasury inflation-protected securities of different durations and yields to maturity.
  8. Mutual Funds & ETFs

    Top 2 Norway ETFs

    Learn about the top two exchange-traded funds, or ETFs, that track the Norway equity market, and explore analyses of their characteristics and suitability.
  9. Mutual Funds & ETFs

    Top 4 Diversified Emerging Market Mutual Funds

    Explore analysis of the top diversified emerging market mutual funds, and learn about their modern portfolio theory statistics, characteristics and suitability.
  10. Mutual Funds & ETFs

    Top 3 Bank Loan ETFs

    Explore analyses of the top three exchange-traded funds, or ETFs, that track the senior bank loan market, and learn about their characteristics and suitability.
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What does Value at Risk (VaR) have to do with maximization of shareholder wealth?

    By enabling investors to estimate with high probability the worst-case and best-case scenarios for the performance of a given ... Read Full Answer >>
  6. 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 >>
  7. 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 >>
  8. 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 >>
  9. 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 >>
  10. 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 >>
  11. 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 >>
  12. 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 >>
  13. 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 >>
  14. 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 >>
  15. 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 >>
  16. 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 >>
  17. 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 >>
  18. 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 >>
  19. 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 >>
  20. 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 >>
  21. 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 >>
  22. 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 >>
  23. What is a good Sharpe ratio?

    The Sharpe ratio is a well-known and well-reputed measure of risk-adjusted return on investment, developed by William Sharpe. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center