In the world of finance this tool helps an investor to determine which investment option to choose. Coefficient of variation is a statistical tool to analyze risk per unit of return of an investment.

Coefficient Of Variation Definition Formula And Example

### Investors use it to determine whether the expected return of the investment is worth.

**Coefficient of variation interpretation in finance**. Coefficient of variation formula. From a financial perspective the financial metric represents the risk to reward. The cv or rsd is widely used in analytical.

Increased potential returns on investment usually go hand in hand with increased risk. In this case blood pressure and pulse rate are two different variables. It is a standardized unitless measure that allows you to compare variability between disparate groups and characteristics.

It is also known as the relative standard deviation rsd. The term coefficient of variation refers to the statistical metric that is used to measure the relative variability in a data series around the mean or to compare the relative variability of one data set to that of other data sets even if their absolute metric may be drastically different. While interpreting coefficient of variation 0 can be reported provided it actually implies zero for example zero weight implies no weight.

For this purpose we have another measure called the coefficient of variation. However standard deviation is not a good measure if we are comparing the relative degree of variation of two sets of data or distributions. The coefficient of variation cov is the ratio of the standard deviation of a data set to the expected mean.

The coefficient of variation cv is a relative measure of variability that indicates the size of a standard deviation in relation to its mean. The standard deviation of returns from an investment option is to be divided by the mean annual return of that option to arrive at the coefficient of variation. In finance the coefficient of variation is important in investment selection.

The coefficient of variation measures the degree of variation in a distribution relative to the mean of the distribution. Risk and return in investing risk and return are highly correlated. In finance the coefficient of variation allows investors to determine how much volatility or risk is assumed in comparison to the amount of return expected from investments.

For example the coefficient of variation for blood pressure can be compared with the coefficient of variation for pulse rate. In probability theory and statistics the coefficient of variation cv also known as relative standard deviation rsd 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 to the mean or its absolute value.

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