What is a good standard deviation for a fund?

What is a good standard deviation for a fund?

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.

How much standard deviation is good in mutual fund?

Interpretation. The greater the standard deviation, the greater the range in what is being measured. If a fund has an average return of 4 percent and a standard deviation of 7, its past returns have ranged from -3 percent to 10 percent. The same fund with a standard deviation of 2 has a return range of 2 to 6 percent.

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.

What is standard deviation 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. It becomes relevant when assessing historical returns as a deterministic measure of expected future returns, in relation to the risk assumed.

Does higher standard deviation mean higher expected 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.

How does standard deviation affect return?

By measuring the standard deviation of a portfolio’s annual rate of return, analysts can see how consistent the returns are over time. A growth-oriented or emerging market fund is likely to have greater volatility and will have a higher standard deviation. Therefore, it is inherently riskier.

How is standard deviation calculated?

The standard deviation is calculated as the square root of variance by determining each data point’s deviation relative to the mean. If the data points are further from the mean, there is a higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation.

What is the standard deviation of a risk free asset?

The introduction of a risk-free asset extends investment options. By definition, the risk- free asset has the same return in all states of the world. Thus, the variance (and standard deviation) of the risk-free return is zero since the expected return and possible returns are the same in all states of the world.

What is considered a high standard deviation?

For an approximate answer, please estimate your coefficient of variation (CV=standard deviation / mean). As a rule of thumb, a CV >= 1 indicates a relatively high variation, while a CV < 1 can be considered low. A “good” SD depends if you expect your distribution to be centered or spread out around the mean.

What does standard deviation mean in an investment?

Standard Deviation. The standard deviation of an investment is the amount of dispersion that the results have compared to the mean. If a mutual fund has a high standard deviation, this means that it is very volatile. If the standard deviation is low, this means that you have a safer form of investment that will not experience extreme highs and lows.

What is standard deviation in bond investing?

Standard deviation is a statistical concept with wide-ranging applications in the world of finance. Whether you are investing in stocks, bonds or valuable metals, standard deviation will help you assess the possible outcomes and be better prepared for what may go wrong.

What is standard deviation of investment returns?

Standard deviation is a statistical measurement in finance that, when applied to the annual rate of return of an investment, sheds light on the historical volatility of that investment. The greater the standard deviation of securities, the greater the variance between each price and the mean, which shows a larger price range.

A high standard deviation means — literally — that the average variation around the mean is large. For instance, a good darts player can throw darts at a dartboard and have them all cluster around the bullseye; a bad darts player will have darts that hit all over the board, and even miss…