The cv or rsd is widely used in analytical chemistry to express the precision and repeatability of an. Coefficient of variation in financial terms is also referred to as volatility of the investment.
The broad market index fund def has a standard deviation of 8 and an expected return of 19.
Coefficient of variation formula finance. Below is the formula for how to calculate the coefficient of variation. Since most investors are risk averse they want to minimize their risk per unit of return. Coefficient of variation formula standard deviation mean it can be further expressed as below coefficient of variation n i xi x 2 x.
Formula for coefficient of variation. In the context of finance finance cfi s finance. Coefficient of variation formula cv s xˉ cv s x.
Naturally the investment having a lower degree of volatility is the safer one. Coefficient of variation is a measure used to assess the total risk per unit of return of an investment. Thus in the investment scenario the formula of the coefficient of variation should be cv volatility expected return x 100.
The coefficient of variation of a random variable can be defined as the standard deviation divided by the mean or expected value of x as shown in the formula below. That means the cov is 0 79 15 19. Mathematically the standard formula for the coefficient of variation is expressed in the following way.
Coefficient of variation is calculated using the formula given below coefficient of variation standard deviation mean coefficient of variation abc 7 98 14 0 57 coefficient of variation xyz 6 28 9 1 0 69. σ s t a n d a r d d e v i a t i o n μ m e a n. μ the mean.
It is calculated by dividing the standard deviation of an investment by its expected rate of return. C v frac sigma mu example. The coefficient of variation cv is a measure of spread that describes the amount of variability of data relative to its mean.
Statistical parameter in probability theory and statistics the coefficient of variation also known as relative standard deviation is a standardized measure of dispersion of a probability distribution or frequency distribution. It is often expressed as a percentage and is defined as the ratio of the standard deviation σ displaystyle sigma to the mean μ displaystyle mu. Begin aligned text cv frac sigma.
It has no units and as such we can use it as an alternative to the standard deviation to compare the variability of data sets that have different means. σ the standard deviation. The coefficient of variation is 0 42 8 19.
Calculating the standard deviation using the example above we found that. C v σ μ w h e r e.