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    Variance and Standard Deviation

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    Khalil Akram
    The document provides formulas for calculating variance, standard deviation, and their relationship. The variance formula sums the squared differences between each value and the mean, divided by n-1. Standard deviation takes the square root of the variance formula. Standard deviation of a security is calculated by summing the squared differences of each return and the expected return, weighted by their probabilities, and taking the square root. Variance is equal to the standard deviation squared.

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    Variance and Standard Deviation

    Uploaded by

    Khalil Akram
    15 views1 page
    The document provides formulas for calculating variance, standard deviation, and their relationship. The variance formula sums the squared differences between each value and the mean, divided by n-1. Standard deviation takes the square root of the variance formula. Standard deviation of a security is calculated by summing the squared differences of each return and the expected return, weighted by their probabilities, and taking the square root. Variance is equal to the standard deviation squared.

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    The document provides formulas for calculating variance, standard deviation, and their relationship. The variance formula sums the squared differences between each value and the mean, divided by n-1. Standard deviation takes the square root of the variance formula. Standard deviation of a security is calculated by summing the squared differences of each return and the expected return, weighted by their probabilities, and taking the square root. Variance is equal to the standard deviation squared.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    15 views1 page

    Variance and Standard Deviation

    Uploaded by

    Khalil Akram
    The document provides formulas for calculating variance, standard deviation, and their relationship. The variance formula sums the squared differences between each value and the mean, divided by n-1. Standard deviation takes the square root of the variance formula. Standard deviation of a security is calculated by summing the squared differences of each return and the expected return, weighted by their probabilities, and taking the square root. Variance is equal to the standard deviation squared.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    The general formula to calculate the variance is:

    n
    variance=σ 2={∑ X− X }2/ n-1
    i =1

    Where:

    σ2 = variance

    X = each value in the set

    X = the mean of the observations

    n = the number of returns in the sample

    σ = (Variance) 1/2 =(σ2) 1/ 2 = standard deviation

    But the formula to calculate standard deviation of a security is:

    Standard Dev = [{(R i – E(R) }2 ]1/2 pi

    Where:

    Each possible outcome = i

    Return = R i

    Probability of occurrence = pi

    Expected return = E(R)

    Now the variance will be:

    Variance = (standard deviation)2

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