How does standard deviation provide investors with a measure of historical volatility?

How does standard deviation provide investors with a measure of historical volatility?
A . By the analysis of historical share price movements
B . Through the measurement of the highs and lows of each asset
C . By measuring the degree of fluctuation around the mean
D . Through the measurement of share price movements compared to the benchmark

View Answer

Answer: C

Explanation:

Standard deviation measures the dispersion of returns around the average (mean) return. A higher standard deviation indicates greater historical volatility, showing how much the returns deviate from the expected average.

Formula:

Standard Deviation=S(Ri-R?)2n ext{Standard Deviation} = sqrt{rac{Sigma (R_i – bar{R})^2}{n}}Standard Deviation=nS(Ri?-R?)2??

Where:

RiR_iRi? = Individual returns

R?bar{R}R? = Mean return

nnn = Number of data points

[Reference: ICWIM, Topic: Risk Measurement and Investment Analysis., CFA Curriculum: Standard Deviation in Portfolio Risk Assessment., , ]