The greater the standard deviation of the stock price, the safer investment in the stock of the company.
Added by Jennifer E.
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Standard deviation is a statistical measure that indicates the amount of variation or dispersion in a set of values. In the context of stock prices, a higher standard deviation means that the stock price has been more volatile, experiencing larger fluctuations Show more…
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as the standard deviation of outcomes for Martin products increases investing in Martin products becomes riskier becauses
Ivan K.
Financial analysts like to use the standard deviation as a measure of risk for a stock. The greater the deviation in a stock price over time, the more risky it is to invest in the stock. However, the average prices of some stocks are considerably higher than the average price of others, allowing for the potential of a greater standard deviation of price. For example, a standard deviation of $5.00 on a $10.00 share is considerably different from a $5.00 standard deviation on a $40.00 share. In this situation, a coefficient of variation might provide insight into risk. Suppose stock X costs an average of $30.00 per share and showed a standard deviation of $3.20 for the past 60 days. Suppose stock Y costs an average of $76.00 per share and showed a standard deviation of $4.95 for the past 60 days. Use the coefficient of variation to determine the variability for each stock. (Round your answers to 2 decimal places, e.g. 1.75 and the tolerance is +/-0.05.) Coefficient of variation for stock X = Coefficient of variation for stock Y = Stock has a greater relative variability.
David N.
Stock A has an expected return of 10% and standard deviation of 20%. Stock B has an expected return of 20% and standard deviation of 10%. This seems to violate the principle that higher risk should imply higher expected return. Yet according to the CAPM, the risk and return of stock A and stock B are possible. How? Consider two risky assets. When, if ever, is it possible to combine the two assets into a risk-free portfolio?
Madhur L.
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