What is '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.

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Economics
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Investing
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Trading Systems & Software
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Bonds & Fixed Income
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Professionals
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Retirement
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Professionals
Standard Deviation And Variance
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Professionals
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What variables are most important when making a prediction through sensitivity analysis?
Explore sensitivity analysis and how this method considers different variables to determine a course of action based on statistical ... Read Answer >> 
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 >> 
What is the difference between variance and standard deviation?
Explore the differences between standard deviation and variance. Learn more about how statisticians use these two concepts. Read Answer >> 
How is standard deviation used to determine risk?
Understand the basics of calculation and interpretation of standard deviation and how it is used to measure risk in the investment ... Read Answer >> 
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 >> 
What is the difference between direct costs and variable costs?
Learn about variable costs and direct costs, how direct costs and variable costs are classified and the differences between ... Read Answer >>