Understanding Standard Deviation in Risk Measurement

Very Easy Risk Management Measuring Risk

As a newly appointed portfolio manager, you are reviewing the performance of your investment portfolio. You want to ensure that you accurately measure the risk involved in the portfolio to make informed decisions moving forward. One key measure of risk you are considering is the standard deviation of the portfolio's returns.

Which of the following statements best describes the standard deviation as a measure of risk?

Standard deviation measures the average return of the portfolio.

Standard deviation is a measure of how much the portfolio's returns deviate from the average return.

Standard deviation only considers the downside volatility of the portfolio's returns.

Hint

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