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Standard deviation measures how much an investment deviates from its average return. Or, we could say that standard deviation measures the dispersion of a data set from its arithmetic mean.

What does the standard deviation number tell you? Let’s take ETF A as an example. The standard deviation of 3.09 tells you that in about two-thirds of the months to come, you should expect the return of ETF A to fall within 3.09 percentage points of the mean return, which was 1.66. In other words, about 68 percent of the time, returns should fall s

So, you want to know how much an investment is likely to bounce? The first thing you do is look to see how much it has bounced in the past. Standard deviation measures the degree of past bounce and, from that measurement, gives you some notion of future bounce. To put it another way, standard deviation shows the degree to which a stock/bond/mutual

However we define it, standard deviation is understood in percentage terms, so a standard deviation of 5 means the investment typically deviates 5 percentage points above and below its average return. If the average return is 10% and the standard deviation is 5, tell the exam that the likely range of return outcomes is from 5% to 15%. Actually, tha

standard deviation provides an estimate of the average difference of each value from the mean.