Standard Deviation

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Definition

Standard Deviation is the annualized standard deviation of the monthly returns of a portfolio. According to economic theory, a higher standard deviation tends to be unattractive to investors since investors are risk averse and do not like to watch the value of their assets fluctuate.

Formula

Monthly Standard Deviation of Returns = Standard Deviation(Returns Month 1, Returns Month 2, . . . Returns month N)

Standard Deviation of Returns = (1 + Monthly Standard Deviation of Returns)^12 - 1

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