For example if we have a standard deviation of 1 5 and a mean of 5 the ratio of the standard deviation to the mean is 0 3. In this example the standard deviation is 25 the size of the mean.
In finance the coefficient of variation is used to measure the risk per unit of return.
Coefficient of variation examples and solutions. Coefficient of variation c v. The formula for coefficient of variation is given below. 1 5 6 8 10 40 65 88.
Fred was offered stock of abc corp. The formula to find coefficient of variation is. 20 18 32 24 26.
Mathbf coefficient of variation frac standard deviation mean times 100. He is looking for a safe investment that provides stable returns. Analysts often report the coefficient of variation as a percentage.
6 coefficient of variation c v. For example assume that the mean monthly return on a t bill is 0 5 with a standard deviation of 0 58. Fred wants to find a new investment for his portfolio.
The resulting answer is the coefficient of variation. To get clear picture of the given data we can find their coefficient of variation. For the pizza delivery example the coefficient of variation is 0 25.
For example in a commonly used spreadsheet processor users can apply the function stdev p to the required cells. Example of coefficient of variation. σ σx 2 n σ x n 2 1530 10 12 2 153 144 9 3.
1 5 6 8 10 40 65 88. It is a mature company with strong operational and financial performance. Coefficient of varitation if n 10 sigma x 120 sigma x 2 1530 find the standard deviation and the coefficient of variation solution.
σ 100. Sample mean 1 5 6 8 10 40 65 88 8 223 8 27 875. Some spreadsheet processors calculate the coefficient of variation on their own without the above steps.
Find the coefficient of variation of the following sample set of numbers. The coefficient of variation can be reported as a percentage. This value tells you the relative size of the standard deviation compared to the mean.
Coefficient of variation c v σ x x 100 3 12 x 100 1 4 x 100 25. In other words the standard deviation is 30 of the mean. C v σ x x 100.
This is why we need coefficient of variation. The mean of a data is 25 6 and its coefficient of variation is 18 75. When the value of the coefficient of variation is lower it means the data has less variability and high stability.
Find the standard deviation. Suppose we have another investment say y with a 1 5 mean monthly return and standard deviation of 6. Calculate the coefficient of variation of the following data.
He considers the following options for investment.