Volatile stock has a high standard deviation, but blue-chip stock (a large company with a positive reputation) has a low standard deviation. The higher the standard deviation, the greater the variance between each price and the mean, which reveals a larger price range. It’s applied to the annual rate of return of an investment. Standard deviation is often used in finance. The more spread out the data, the higher the standard deviation, says Investopedia. If the data points are further from the mean, the deviation within the dataset is higher. Determining the variation between each data point relative to the mean is valuable for comparing sets of data that may have the same mean but a different range.įor example, the mean of the following two data sets is the same, but the latter is clearly more spread out: It’s calculated as the square root of the variance (the spread of numbers in a dataset). Standard deviation is a statistic that measures the dispersion of a dataset, relative to its mean.

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