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On the other hand, Fund B has a Standard Deviation of 14, which means its return can vary between -2% to 26% (by adding and subtracting 14 from the average return).

Assuming that stability of returns is most important for Raman while making this investment and keeping other factors as constant, we can easily see that both funds are having an average rate of return of 12% however Fund A has a Standard Deviation of 8, which means its average return can vary between 4% to 20% (by adding and subtracting eight from the average return).

Raman plans to invest a certain amount of money every month in one of the two Funds which he has shortlisted for investment purpose. Source: Portfolio Standard Deviation () Example You are free to use this image on your website, templates etc, Please provide us with an attribution link How to Provide Attribution? Article Link to be Hyperlinked

A Portfolio with low Standard Deviation implies less volatility and more stability in the returns of a portfolio and is a very useful financial metric when comparing different portfolios.A high portfolio standard deviation highlights that the portfolio risk is high, and return is more volatile in nature and, as such unstable as well.Portfolio Standard Deviation is calculated based on the standard deviation of returns of each asset in the portfolio, the proportion of each asset in the overall portfolio i.e., their respective weights in the total portfolio, and also the correlation between each pair of assets in the portfolio.

This helps in determining the risk of an investment vis a vis the expected return. Interpretation of Standard Deviation of Portfolio Portfolio Standard Deviation refers to the volatility of the portfolio which is calculated based on three important factors that include the standard deviation of each of the assets present in the total Portfolio, the respective weight of that individual asset in total portfolio and correlation between each pair of assets of the portfolio.