Standard deviation is a statistical measurement of volatility. It provides a good indication of volatility.
It based on past data to measures the tendency of data to be spread out.
When looking at the historic returns of a mutual fund, standard deviation can be used to measure the variation of expected return that has taken place in the past giving a sense of range of performance that can be expected given different probabilities of return for the future.
- The smaller the difference between closing prices and the mean price, the lower the SD and the lower the volatility
- The larger the difference between the closing prices and the average price, the higher the SD and volatility.
Standard deviation is useful for investing in stock options, because it provides a measure of volatility.
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