Standard Deviation Definition : It is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard Deviation is calculated as the square root of variance. In finance, Standard Deviation is applied to the annual rate of return (or for any other specified period) of an investment to measure the investment’s volatility. Fluctuation in returns is a measure of risk. Example : A fund which has given consistently 1% return in the last six months will have a lower standard deviation than a fund which returned 17%, 0%, 17%, -6%, 8% and -9% in the last six months of operation. The returns of a fund must be seen along with standard deviation to make a more logical conclusion. Explanation : Standard Deviation measures the fluctuation in periodic returns of a scheme in relation to its own average return. It is a statistical measure which helps the investors to get an idea about the possible volatility related with a mutual fund’s returns. A fund having a high value of standard deviation indicates that its performance is more volatile than a fund having lower standard deviation. Standard deviation, as a measure of risk, is relevant for both debt and equity schemes. A lower standard deviation value does not guarantee that the fund will perform well as it is only a representation of volatility.
Posted on: Tue, 25 Feb 2014 17:17:18 +0000
Trending Topics
Recently Viewed Topics
© 2015