Average standard deviation
If I have monthly returns for 10 different mutual funds, how do I calculate the average standard deviation for all the 10 funds together? Can I use the average return of each month for all the 10 funds or should I calculate the standard deviation of each fund first?
Calculate the standard deviation of each fund first and then take the average of that. If you average the returns, you will dramatically lower the standard deviation calculated (it's wrong in other words).
ah thats what i thought, thanks man. Is it the same for the returns? Because I averaged the monthly returns so that I could plot them in a diagram.
It depends on the extent to which the 10 different funds are correlated with one another. You can do this on excel or with stat software. However, you will likely see some gains from diversification (that is, real correlations usually aren't exactly 1, so the SD of the portfolio will be less than the weighted average SD of the funds).
I concentrated in statistics at Wharton UG, where I helped teach four different courses in statistics. I'm not sure why you're so angry, but thanks for the comment regardless.
OP -- this is a poorly worded question. Are you trying to determine the avg vol of each of the funds or are you trying to determine the vol of the combo of the ten funds?
im trying to determine the avg vol of each of the funds, so I can compare it with another group of funds. So im not interested in knowing the vol of the combo.
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