Mas AF4 - Investment Planning (Measuring and comparing the performance of two funds) Mind Map on standard deviation, created by paulus1981 on 09/06/2013.
* obtain the arithmetic mean
* obtain the set of deviations from the mean
* square each deviation
* divide the sum of the squared deviations by the number of observations to obtain the population variance
* take the square root of the variance to obtain the standard deviation
3 represents the average amount by which the values in the distribution deviate from the arithmetic mean
4 normal distributions
4.1 68.26% - two thirds within one standard deviation
4.2 95.5% of all observations within two standard deviations
4.3 99.75% of all observations within three standard deviations of the mean
5 limitation
5.1 actual returns are not neatly/symmetrically dispersed
5.1.1 most long-run distributions of equity returns are positively skewed
6 The most commonly used method to quantify risk
7 Measures how widely dispersed are the possible outcomes around the mean expected outcome