If the asset has a standard deviation of, say, 5%, then most of the time the returns would be expected to deviate from that 10% average between plus or minus 5%. So, from 10%, you may commonly see 5% to 15% returns as well under the standard deviation.
What is a good standard deviation for a stock price?
A stock’s value will fall within two standard deviations, above or below, at least 95% of the time. For instance, if a stock has a mean dollar amount of $40 and a standard deviation of $4, investors can reason with 95% certainty that the following closing amount will range between $32 and $48.
What is the expected standard deviation for KMP stock?
What is the expected standard deviation for KMP stock? s = [0.30 (18 - 10.4)^2 + 0.50 (12 - 10.4)^2 + 0.20 (-5 - 10.4)^2]^1/2 = 8.13%. If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the Sharpe measure would be
What is the expected holding period return for GM stock?
What is the expected holding-period return for GM stock? HPR = 0.40 (30%) + 0.40 (11%) + 0.20 (-10%) = 14.4%. Over the past year, you earned a nominal rate of interest of 14% on your money.
How to calculate standard deviation?
When calculating the standard deviation, you first need to determine the mean and variance of the stock. To calculate the mean, you add together the value of all the data points and then divide that total by the number of data points. To determine the variance, you take the mean less the value of the data point and square each individual result.
What is a good standard deviation stock?
When stocks are following a normal distribution pattern, their individual values will place either one standard deviation below or above the mean at least 68% of the time. A stock's value will fall within two standard deviations, above or below, at least 95% of the time.
Is high standard deviation good for stocks?
Standard deviation helps determine market volatility or the spread of asset prices from their average price. When prices move wildly, standard deviation is high, meaning an investment will be risky. Low standard deviation means prices are calm, so investments come with low risk.
Which of the following measures of risk best highlights the potential loss from extreme negative returns?
Only VaR measures potential loss from extreme negative returns.
What is S&P 500 standard deviation?
An S&P 500 index fund has a standard deviation of about 15%; a standard deviation of zero would mean an investment has a return rate that never varies, like a bank account paying compound interest at a guaranteed rate.
What is considered a high standard deviation?
In general, a CV value greater than 1 is often considered high. For example, suppose a realtor collects data on the price of 100 houses in her city and finds that the mean price is $150,000 and the standard deviation of prices is $12,000.
What is the expected holding period return for the stock?
The holding period return, or HPR, is the total return from income and asset appreciation over a period of time expressed as a percentage. The holding period return formula is: HPR = ((Income + (end of period value - original value)) / original value) * 100.
When assessing tail risk by looking at the 5 Worst case scenario the VaR is the?
When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the most optimistic as it takes the highest return (smallest loss) of all the cases.
What is the expected holding period average return for KMP stock?
What is the expected holding-period return for KMP stock? HPR = 0.30 (18%) + 0.50 (12%) + 0.20 (-5%) = 10.4%. The capital gain yield during the period plus the dividend yield. You purchased a share of CSCO stock for $20.
How much does a stock fall within a standard deviation?
A stock’s value will fall within two standard deviations, above or below, at least 95% of the time. For instance, if a stock has a mean dollar amount of $40 and a standard deviation of $4, investors can reason with 95% certainty that the following closing amount will range between $32 and $48. This also means that 5% of the time, ...
Why is standard deviation used in stock returns?
When it comes to stock returns and investments, the standard deviation is used to determine market volatility and, therefore, risk. A higher risk stock will demonstrate an unpredictable price and a wider range.
Why is standard deviation important?
Standard deviation can be used throughout the financial world, but it is especially useful when it comes to investing in stocks and determining trading strategies. The use of standard deviation assists in measuring the volatility of the market and stocks as well as predicting stocks’ performance trends.
What does it mean when the standard deviation is higher?
When the standard deviation is higher, it points to a larger variance between the stock’s prices and the mean . This points to a more vast price range. For example, a high standard deviation will appear for volatile stocks, while a lower standard deviation is present in stocks that are more consistent.
Why do aggressive growth funds have a higher standard deviation?
Conversely, investors can expect an aggressive growth fund to have a higher standard deviation compared to standard stocks because the whole point of these funds is to generate exceptionally high returns. There isn’t necessarily a better level of standard deviation.
How to find standard deviation?
When calculating the standard deviation, you first need to determine the mean and variance of the stock. To calculate the mean, you add together the value of all the data points and then divide that total by the number of data points.
Is a low standard deviation a good stock?
When its standard deviation is low, it’s usually a reliable blue-chip stock. In taking all this to mind, investors can assume that a low standard deviation points to a less risky investment, while a greater variance and standard deviation reflects a higher risk stock. While 95% of the time, investors can reasonably assume ...