What type of risk does the standard deviation and CV measure?
Simply, standard deviation measures investment risk in terms of the volatility of returns. CV measures how much risk is assumed in comparison to the amount of return expected from investment.
What type of risk is measured by standard deviation?
Key Takeaways. One of the most common methods of determining the risk an investment poses is standard deviation. Standard deviation helps determine market volatility or the spread of asset prices from their average price. When prices move wildly, standard deviation is high, meaning an investment will be risky.
Which is the best measure of risk for a single asset?
Coefficient of Variation: Measure of Relative Risk The greater the standard deviation, the greater the risk of an investment.
Is a higher or lower coefficient of variation better?
The coefficient of variation (CV) is the ratio of the standard deviation to the mean. The higher the coefficient of variation, the greater the level of dispersion around the mean. It is generally expressed as a percentage. The lower the value of the coefficient of variation, the more precise the estimate.
How do you know if standard deviation is correct?
The Formula ExplainedWork out the mean. Then for each number: subtract the Mean and square the result. Then work out the mean of those squared differences. Take the square root of that: Work out the mean. Then for each number: subtract the Mean and square the result. Then work out the mean of those squared differences.