Answer to Question #167008 in Statistics and Probability for Phindile Mathebula

Question

coefficient of variation

Answer 1

Coefficient of Variation(CV):

The coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the mean. The coefficient of variation represents the ratio of the standard deviation to the mean, and it is a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from one another.

Formula:

Below is the formula for how to calculate the coefficient of variation:

$\begin{aligned} &\text{CV} = \frac { \sigma }{ \mu } \\ &\textbf{where:} \\ &\sigma = \text{standard deviation} \\ &\mu = \text{mean} \\ \end{aligned}$

Key Features:

• The coefficient of variation (CV) is a statistical measure of the relative dispersion of data points in a data series around the mean.
• In finance, the coefficient of variation allows investors to determine how much volatility, or risk, is assumed in comparison to the amount of return expected from investments.
• The lower the ratio of the standard deviation to mean return, the better risk-return trade-off.