Variability
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. |
|
Investopedia explains 'Variability'Variability is used to standardize the returns obtained on an investment. One measure of reward-to-variability 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. |
Related Definitions
Articles Of Interest
-
Introduction To Investment Diversification
Reducing risk and increasing returns in your portfolio is all about finding the right balance. -
The Capital Asset Pricing Model: An Overview
CAPM helps you determine what return you deserve for putting your money at risk. -
Calculating The Equity Risk Premium
See the model in action with real data and evaluate whether its assumptions are valid. -
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". -
The Equity-Risk 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. -
Determining Risk And The Risk Pyramid
Many investors do not understand how to determine the level of risk their individual portfolios should bear. -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
Top 4 Most Scandalous Insider Trading Debacles
Here we look at some of the landmark incidents of insider trading. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
Regression Basics For Business Analysis
This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how.
Free Annual Reports