In this lesson, we will read an article from Boundless.com about about the importance of standard deviation and variance in investing.
Vocabulary
Standard deviation and variance are difficult concepts. Here are two definitions from Boundless.com that connect standard deviation and variance specifically to investment.
- Standard deviation: The standard deviation of an investment is obtained by taking the square root of the variance. It has a more straightforward meaning than variance. It tells you that in a given year, you can expect an investment's return to be one standard deviation above or below the average rate of return.
- Variance: In finance, variance is a term used to measure the degree of risk in an investment. It is calculated by finding the average of the squared deviations from the mean rate of return.
Pre-reading
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