What Is Standard Deviation?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

Standard deviation is a mathematical measure which approximates the average deviation of any given data point from the mean of the entire data set. For example, if a data set of 100 has a standard deviation of 5 and a mean of 50, then on average no value will be outside the range of 45-55.

The calculation for standard deviation is simply the square root of the variance.

In finance, standard deviation is used to measure risk. If an asset has a return of 10% with a high standard deviation, then it is less likely that it will return that 10% consistently and is therefore more risky.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.