Standard Deviation

Standard Deviation is calculated by taking the square root of the variance and measures the level of variation or dispersion around the Mean. For Stocks it is used as a measure of Volatility and Risk.

The Standard Deviation calculates the dispersion around the Mean or the level of variation from the average. It is calculated by taking the square root of the Variance. For a Stock Price, the Standard Deviation is calculated by first calculating the Mean (the average), for the time period. Then, for each observation, closing Stock Price, subtract the Mean value and then take the Square Root of the Variance. A higher level of Standard Deviation represents a higher-level dispersion from the Mean or price change, which is commonly termed as Volatility and is seen as a measure of Risk.