Article: Using Standard Deviation And The Sharpe Ratio: Tools Of The Pros
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Using Standard Deviation And The Sharpe Ratio: Tools Of The Pros
If you're choosing investments based on total returns over specific time periods (i.e., 1yr, 3yrs, 5yrs, and 10yrs) without assessing the risk, it's time to add another component to your selection process.
Standard Deviation and the Sharpe Ratio are two basic tools that are used by investment professionals for determining risk and, with a little practice, you can be using them too.
Although standard deviation isn't limited to the area of investments, it is a measurement of volatility that translates into risk. High standard deviations denote a wide range of investment returns and low deviations denote a narrow range of returns.
A word of caution: standard deviation won't do you much good unless you're using it to compare standard deviations amon...
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