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Investment Dictionary - Standard deviation

A measure of volatility, or risk. For example, given a portfolio with a 12% annualized return and an 11% standard deviation, an investor can expect that in 13 out of 20 annual periods (about two-thirds of the time) the return on that portfolio will fall within one standard deviatino, or between 1% (12% - 11%) and 23% (12% + 11%). The remaining one-third of the time an investor should expect that the annual return will fall outside the 1% - 23% range. Two standard deviations (11% x 2) would account for 95% (19 out of 20 periods). The range of expected returns would be between -10% (12% - 22%) and 34% (12%+22%). The greater the standard deviation, the greater the volatility of a portfolio. Standard deviation can be measured for varying time periods. For example, you can have a monthly standard deviation or an annualized standard deviation measuring the volatility for a given time frame.

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