Glossary

Standard deviation is a statistical measure that indicates the degree of dispersion, or variation, within a dataset. In finance, it is commonly used to gauge the volatility of investments, such as stocks or portfolios. 💼

A higher standard deviation indicates greater volatility, which means a higher risk for the investment, while a lower standard deviation suggests a more stable, less risky investment.

Example: If stock A has a standard deviation of 5% and stock B has a standard deviation of 2%, it means that stock A is more volatile and potentially riskier than stock B.

Fun fact: Standard deviation is closely related to the concept of a "bell 🛎️ curve", which is a graphical representation of the normal distribution. In a bell curve, approximately 68% of the data points fall within one standard deviation of the mean, 95% within two standard deviations, and 99.7% within three standard deviations.