Understanding Standard Deviation in Portfolio Risk

Very Easy Portfolio Risk And Return Risk Measures

In portfolio management, understanding risk is crucial to making informed investment decisions. One common measure used to assess the risk of an investment is the standard deviation of its returns. Standard deviation quantifies how much the returns of an investment deviate from its average return over a specific period. Which of the following statements correctly defines the concept of standard deviation?

Standard deviation measures the average of the investment returns over a period.

Standard deviation indicates how much an investment's returns fluctuate around its average return.

Standard deviation represents the total returns generated by an investment.

Hint

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