Difference Between Portfolio Beta Standard Deviation

Post on: 18 Апрель, 2015 No Comment

Difference Between Portfolio Beta Standard Deviation

Modern portfolio statistics attempt to show how an investment’s volatility and return measure against a given benchmark, such as U.S. Treasury bills. Beta and standard deviation are measures by which a portfolio or fund’s level of risk is calculated. Beta compares the volatility of an investment to a relevant benchmark while standard deviation compares an investment’s volatility to the average return over a period of time. Standard deviation tells an investor a more general story about the security’s tendency to move up and down abruptly, while beta tells the investor how much higher or lower a security will likely trade in relation to an index.

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Standard Deviation Defined

Standard deviation is a statistical measurement that looks at historical volatility, indicating the tendency of the returns to rise or fall considerably in a short period of time. A volatile investment has a higher risk because its performance may change rapidly in either direction at any moment. A higher standard deviation means an investment is highly volatile, more risky and tends to yield higher returns. A lower standard deviation means the investment is more consistent and moves less choppily. It tends to yield more modest returns and presents a lower risk.

How Standard Deviation Works

How Beta Works

References

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How to Calculate Beta

How to Calculate Portfolio Returns & Deviations

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