DEFINITION of 'Variability'
The extent to which data points in a statistical distribution or data set diverge from the average or mean value. Variability also refers to the extent to which these data points differ from each other. There are four commonly used measures of variability: range, mean, variance and standard deviation.
The risk perception of an asset class is directly proportional to the variability of its returns. As a result, the risk premium that investors demand to invest in assets, such as stocks and commodities, is higher than the risk premium for assets such as Treasury bills, which have much lower return variability.
BREAKING DOWN 'Variability'
Variability is used to standardize the returns obtained on an investment. One measure of rewardtovariability is the Sharpe ratio, which measures the excess return or risk premium per unit of risk for an asset. All else being equal, the asset with the higher Sharpe ratio delivers more return for the same amount of risk.

Sharpe Ratio
The Sharpe Ratio is a measure for calculating riskadjusted return, ... 
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. ... 
RiskAdjusted Return
A concept that refines an investment's return by measuring how ... 
RiskReturn Tradeoff
The principle that potential return rises with an increase in ... 
Treasury Bill  TBill
A shortterm debt obligation backed by the U.S. government with ... 
Risk
The chance that an investment's actual return will be different ...

Investing Basics
Determining Risk And The Risk Pyramid
Many investors do not understand how to determine the risk level their individual portfolios should bear. 
Investing Basics
Introduction To Investment Diversification
Reducing risk and increasing returns in your portfolio is all about finding the right balance. 
Fundamental Analysis
The Capital Asset Pricing Model: An Overview
CAPM helps you determine what return you deserve for putting your money at risk. 
Options & Futures
Calculating The Equity Risk Premium
See the model in action with real data and evaluate whether its assumptions are valid. 
Active Trading Fundamentals
How To Convert Value At Risk To Different Time Periods
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Fundamental Analysis
The EquityRisk Premium: More Risk For Higher Returns
Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. 
Fundamental Analysis
5 Basic Financial Ratios And What They Reveal
Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know. 
Investing
What Investors Need to Know About Returns in 2016
Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016. 
Economics
The Basics Of Business Forecasting
Whether business forecasts pertain to finances, growth, or raw materials, it’s important to remember that a forecast is little more than an informed guess. 
Economics
Forces Behind Interest Rates
Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing.

What is finance?
"Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >> 
What is the difference between positive and normative economics?
Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >> 
Do plane tickets get cheaper closer to the date of departure?
The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >> 
Is Colombia an emerging market economy?
Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >> 
What assumptions are made when conducting a ttest?
The common assumptions made when doing a ttest include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >> 
What is the utility function and how is it calculated?
In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>