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Glossary · investing

What is Standard deviation?

A statistical measure of dispersion around an average return.

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In investing, standard deviation quantifies how much returns vary from their average. Higher standard deviation implies wider swings — bigger gains and bigger losses.

It's the foundation of many risk metrics including Sharpe ratio and Value at Risk. Assumes a roughly normal distribution, which real market returns violate at the extremes (fat tails).

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Frequently asked questions

Is one standard deviation always ~68%?

Under a normal distribution, yes — but market returns have more extreme events than a normal distribution predicts.

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