Standard deviation
Also called: SD, sigma
A measure of how widely values are spread around their mean. For investment returns, it is the usual measure of volatility.
Standard deviation is the square root of the average squared distance of each value from the mean. A higher figure means outcomes are more spread out, in both directions.
It is calculated from past data and can change, often sharply in a crisis.
Example
Yearly returns of −12, 28, 4, 24 and −4 percent have a mean of 8% and a standard deviation of about 15.6 percentage points.
Learn more in these lessons
- Averages, spread and volatilityWhat does volatility mean in investing?
- Bollinger BandsHow are Bollinger Bands built, and what does it mean when price touches a band?
- Volatility and maximum drawdownHow do you measure the risk a portfolio actually puts you through?
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