DEFINITION of 'Variance'
A measurement of the spread between numbers in a data set. The variance measures how far each number in the set is from the mean. Variance is calculated by taking the differences between each number in the set and the mean, squaring the differences (to make them positive) and dividing the sum of the squares by the number of values in the set.
INVESTOPEDIA EXPLAINS 'Variance'
Variance is used in statistics for probability distribution. Since variance measures the variability (volatility) from an average or mean, and volatility is a measure of risk, the variance statistic can help determine the risk an investor might take on when purchasing a specific security.
A variance value of zero indicates that all values within a set of numbers are identical; all variances that are nonzero will be positive numbers. A large variance indicates that numbers in the set are far from the mean and each other, while a small variance indicates the opposite.
Statisticians use variance to see how individual numbers relate to each other within a data set, rather than using broader mathematical techniques such as arranging numbers into quartiles. A drawback to variance is that it gives added weight to numbers far from the mean (outliers), since squaring these numbers can skew interpretations of the data.

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The parametric method, also known as the variancecovariance method, is a risk management technique for calculating the value ... Read Full Answer >> 
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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 >> 
How do you calculate variance in Excel?
To calculate statistical variance in Microsoft Excel, use the builtin Excel function VAR. Given a set of numbers value1 ... 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 is the difference between variance and covariance?
Variance and covariance are mathematical terms frequently used in statistics, and despite the similar sounding names they ... Read Full Answer >> 
Is variance good or bad for stock investors?
Variance is neither good nor bad for investors in and of itself. However, high variance in a stock is associated with higher ... Read Full Answer >> 
How is correlation used to measure volatility?
The bestknown application of correlation to measure volatility is probably the Rsquared value of a mutual fund. Rsquared ... 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 >>

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