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Coefficient of variation

• Is a statistic which is used to determine the degree of relative dispersion. It extends standard deviation analyses. By definition, standard deviations are statistical measures of absolute dispersion. Therefore, it is difficult to compare the variability of two different asset classes or assets within those classses. It is computed by dividing the standard deviation of Asset I by the mean of Asset I. Similarly, the standard deviation of Asset II is divided by the mean of Asset II and so forth. These multiple coefficient of variation can then be compared against one another. By using the coefficient of variation, an analyst can compare variation among relatively high and low priced securities. Similarly, the analyst can evaluate the volatility differences between commodities, currencies, stocks and bond markets.

• Abbreviated CV. A measure of relative dispersion used in comparing the risk of assets with differing expected returns. It is the ratio of the standard deviation divided by the mean (or expected return). It tells you the number of units of risk per unit of return.

 
 Embedded terms in definition
 Analyst
Asset classes
Assets
Asset
Bond
Dispersion
Expected return
Low price
Mean
Return
Risk
Securities
Standard deviation
Unit
Volatility
 
 Related Terms
 Beta coefficient
Coefficient of correlation
Coefficient of determination
Correlation coefficient
Information coefficient
Variation margin

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