Reference Materials
Standard Deviation
Standard deviation of return measures the average deviations of a return series from its mean, and is often used as a measure of risk. A large standard deviation implies that there have been large swings in the return series of the manager.
Standard deviation can be calculated in two ways:
-
Standard Deviation assumes that the returns series is a sample of the population. This is the calculation most commonly used. The standard deviation of the return series is the square root of the variance:
StdDev(r1, …, rn) =
where r1, …, rn is a return series, i.e., a sequence of returns for n time periods. -
Population Standard Deviation assumes that the return series is the population. Population Standard Deviation is the square root of the population variance:
PStdDev(r1, …, rn) =
Standard Deviation and Population Standard Deviation are the square root of Variance and Population Variance.
To view our quick tip video on Standard Deviation, click the following link: http://www.styleadvisor.com/sites/default/files/quick_tip_video/standard...