What is Standard Deviation?
• Standard deviation is a commonly-used measurement of diversity or variability in statistics, finance and probability theory. More specifically, standard deviation will show how much variation is present from the mean or expected value. For instance, a low standard deviation will indicate that the given data points are very close to the mean, while a high standard deviation indicates that the data are spread over a large range of values.
• In addition to expressing variables of a given population, standard deviation is also used to measure confidence in statistical conclusions. For instance, the margin of error in polling data is typically determined by calculating the standard deviation in the results if the same poll were to be conducted a number of times.
What is a Standard Deviation Calculator?
• A standard deviation calculator is a free online resource that enables you to calculate the standard deviation, sum, mean and confidence range for a given set of numbers. The standard deviation calculator can be used for population measures or to assess risk for financial investments.
• Unlike other online resources (such as a mortgage or credit card calculator) the standard deviation calculator does not require the user to input variables in specific in a series of spaces provided. Instead, the standard deviation calculator is offered as a large box, where the user will input the pertinent set or series of numbers for their given problem or situation. After the numbers are entered, the user simply clicks “calculate” and the standard deviation calculator will provide a percentage range for your sub-set.
Standard Deviation used in Finance:
• Standard deviation is critical in finance, because the technique can elucidate on the rate of return for an investment or transaction. In essence, the standard deviation will yield the underlying investment or transaction’s volatility.
• In finance, standard deviation is used to represent the risk associated with a given investment security (such as a stock or bond etc.) or the risk of actively managed bundles of securities (such as hedge funds, mutual funds, or ETFs).
• Risk a primary factor when determining how to manage or invest in securities; risk determines the variation in returns on the investment, which in turn offers a mathematical basis for the investment decision.
• The basic concept of risk is that, as it increases, the expected rate of return for the underlying asset will increase to entice potential investors. Investors, in other words, should expect a higher return on a riskier investment to obfuscate the uncertainty latent in the purchase. In essence, standard deviation will provide a quantified estimation regarding the uncertainty of future returns.
