Understanding Standard Deviation in Portfolio Risk

Easy Portfolio Risk And Return Risk Measures

In the realm of portfolio management, understanding various measures of risk is crucial for evaluating potential investments. One commonly used measure of risk is the standard deviation of the portfolio's returns. It quantifies the volatility or dispersion of returns relative to the expected return of the portfolio.

Which of the following statements correctly defines the standard deviation?

Standard deviation is a statistical measure of the average value of a portfolio's returns.

Standard deviation measures the dispersion of returns around the mean return of the portfolio.

Standard deviation is the ratio of the portfolio's returns to its risk-free rate.

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