How do you interpret standard deviation in risk and return?

How do you interpret standard deviation in risk and return?

Standard deviation is a measure of the risk that an investment will fluctuate from its expected return. The smaller an investment’s standard deviation, the less volatile it is. The larger the standard deviation, the more dispersed those returns are and thus the riskier the investment is.

What is the standard deviation of the rate of return?

Standard deviation is the measure of investment risk and return, and the amount by which returns deviate from the average return observed within the investment period.

What is the standard deviation of portfolio returns?

Portfolio Standard Deviation is the standard deviation of the rate of return on an investment portfolio and is used to measure the inherent volatility of an investment. It measures the investment’s risk and helps in analyzing the stability of returns of a portfolio.

How do you find standard deviation from expected return?

To calculate the standard deviation (σ) of a probability distribution, find each deviation from its expected value, square it, multiply it by its probability, add the products, and take the square root.

Does higher standard deviation mean more risk?

In investing, standard deviation is used as an indicator of market volatility and thus of risk. The more unpredictable the price action and the wider the range, the greater the risk. The higher the standard deviation, the riskier the investment.

How do you interpret the standard deviation?

Low standard deviation means data are clustered around the mean, and high standard deviation indicates data are more spread out. A standard deviation close to zero indicates that data points are close to the mean, whereas a high or low standard deviation indicates data points are respectively above or below the mean.

What is a good portfolio standard deviation?

Standard deviation allows a fund’s performance swings to be captured into a single number. For most funds, future monthly returns will fall within one standard deviation of its average return 68% of the time and within two standard deviations 95% of the time.

Is it better to have a higher or lower standard deviation?

A high standard deviation shows that the data is widely spread (less reliable) and a low standard deviation shows that the data are clustered closely around the mean (more reliable).

How do you interpret data using mean and standard deviation?

More precisely, it is a measure of the average distance between the values of the data in the set and the mean. A low standard deviation indicates that the data points tend to be very close to the mean; a high standard deviation indicates that the data points are spread out over a large range of values.

What is the relationship between mean and standard deviation?

Standard deviation is statistics that measure the dispersion of a dataset relative to it is mean and its calculated as the square root of variance.it is calculated as the square root of variance by determining the variation between each data point relative to the mean.

Is the standard deviation a measure of risk?

Standard deviation is not a measure of risk, rather it is the measure of volatility. For example, Fund A with following return over the past five years -12%, -5%, -10%, -15%, and -1% has the same SD (5.0) as Fund B with +12%, +5%, +1-%, +15%, and +1% return.

How is a risk and return chart similar?

The Risk & Return chart is similar in concept to a classic efficient frontier image that maps the average return and standard deviation tradeoffs for any combination of assets.

What is the standard deviation of a mutual fund?

Then Standard deviation is a statistical measure of how spread out the data is from its mean. In general, In terms of a mutual fund or an ETF’s return, Standard Deviation measures how widely fund’s or ETF’s return are spread out from its average return over a period of time.

What is the standard deviation of Vanguard bond fund?

The standard deviation of Vanguard Total Bond Market Index Fund (VBTLX) is 3.44 based on 3-year data per morningstar.com. The average return of VBTLX is 5.34 (3-year). So what does this tell you about the fund’s future returns?