Standard deviation

A statistical measure of how spread out an asset's returns are around their average - the common numeric stand-in for volatility.

Example

An asset with a higher standard deviation swings further from its average return, in both directions, than one with a lower figure.

Important

It treats an unusually good year and an unusually bad one as equally 'risky' - it measures spread, not direction, so it cannot tell you whether the surprises tend to be pleasant.

Related terms

• Volatility — How much and how often an asset's price moves, up or down, over a given period.
• Risk — The chance that an investment's actual outcome differs from what you expected, in either direction.

Lessons that explain it

• Correlation: what actually moves together — Diversification is only worth what the independence behind it is worth, and correlation is how that independence is measured - including the fact that it changes exactly when you need it not to. (12 min)
• What risk actually means — Risk is not 'the price went down.' It's the chance the money never comes back at all - and those are two very different things to manage. (10 min)

All 578 terms in the Investing glossary