Standard deviation is the most commonly used quantitative form to reflect the dispersion degree of a group of data, and it is an important indicator to measure accuracy. In finance, standard deviation is a concept in risk control. Accurately speaking, the standard deviation is the unit of risk measurement.
So when it comes to standard deviation, there is a very important knowledge, that is, normal distribution. In the financial field, all the products we buy are risky. When we use standard deviation to analyze the rise and fall of products, we can more easily understand the severity and risk of product rise and fall.
Generally speaking, the greater the tolerance of standard answers, the stronger the volatility of products and the greater the risk; The smaller the standard deviation, the milder the fluctuation and the smaller the risk. In addition, when we analyze the risk situation, we should also combine more indicators to ensure its accuracy.
For example, if we buy a wealth management product, its annual yield is 10%, and its standard deviation is 2%.
Then, we can roughly calculate the possibility of different interval returns. If the rate of return is between 8%- 12% (4 standard deviations), its possibility is 68.2%. In addition, the yield is between 6%- 14% (with a difference of 8 standard deviations), and its possibility is 95.4%.