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Determining Standard Deviation (Risk Measure)

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Arslan Rammay

This document discusses statistical concepts related to risk measurement and return calculation. It defines standard deviation as a measure of risk and shows the formula to calculate it from a data set. It also defines coefficient of variation as a measure of relative risk and shows the formula. Finally, it provides the formulas to calculate expected return from a data set and standard deviation as a measure of risk for a continuous distribution.

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Determining Standard Deviation (Risk Measure)

Uploaded by

Arslan Rammay
6 views5 pages
This document discusses statistical concepts related to risk measurement and return calculation. It defines standard deviation as a measure of risk and shows the formula to calculate it from a data set. It also defines coefficient of variation as a measure of relative risk and shows the formula. Finally, it provides the formulas to calculate expected return from a data set and standard deviation as a measure of risk for a continuous distribution.

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This document discusses statistical concepts related to risk measurement and return calculation. It defines standard deviation as a measure of risk and shows the formula to calculate it from a data set. It also defines coefficient of variation as a measure of relative risk and shows the formula. Finally, it provides the formulas to calculate expected return from a data set and standard deviation as a measure of risk for a continuous distribution.

Copyright:

© All Rights Reserved
Download as PPTX, PDF, TXT or read online from Scribd
Download as pptx, pdf, or txt
6 views5 pages

Determining Standard Deviation (Risk Measure)

Uploaded by

Arslan Rammay
This document discusses statistical concepts related to risk measurement and return calculation. It defines standard deviation as a measure of risk and shows the formula to calculate it from a data set. It also defines coefficient of variation as a measure of relative risk and shows the formula. Finally, it provides the formulas to calculate expected return from a data set and standard deviation as a measure of risk for a continuous distribution.

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© All Rights Reserved
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Determining Standard

Deviation (Risk Measure)


n
s= S
i=1
( Ri - R ) 2
( P i )

s= .01728

s= .1315 or 13.15%

1
Coefficient of Variation
The ratio of the standard deviation of
a distribution to the mean of that
distribution.
It is a measure of RELATIVE risk.
CV = s / R
CV of BW = .1315 / .09 = 1.46
2
Discrete vs. Continuous
Distributions
Discrete Continuous
0.4 0.035
0.35 0.03
0.3 0.025
0.25 0.02
0.2 0.015
0.15 0.01
0.1 0.005
0.05
0
0

4%
-5%

13%
22%
31%

49%
58%
67%
40%
-50%

-14%
-41%
-32%
-15% -3% 9% 21% 33% -23%

3
Determining Expected
Return (Continuous Dist.)
n
R = S ( Ri ) / ( n )
i=1

R is the expected return for the asset,


Ri is the return for the ith observation,
n is the total number of observations.

4
Determining Standard
Deviation (Risk Measure)
n
s= S ( R i - R )2
i=1

(n)
Note, this is for a continuous
distribution where the distribution is
for a population. R represents the
population mean in this example.
5

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