Business, Legal & Accounting Glossary
Standard deviation represents a distribution of data points. In an economic context, the standard deviation is important in describing economic data. Standard deviation is a statistical measure of the dispersion of a number of values and is used in various economic applications. It is a superior indicator of volatility.
Standard deviation measures the dispersion of values from the average value. Dispersion is referred to as the difference between the actual value and average value. Dispersion and standard deviation have a direct relation. The more is the difference between the actual value and average value, the higher is the value of standard deviation.
Standard deviation is a measure of variability. The degree to which value varies from the average value is the measure of standard deviation. Steps involved in calculation of standard deviation are simple. Considering a 20-period, here are the steps involved in the calculation of standard deviation.
Standard deviation as a statistical measure of a number of values can be expressed as:
σ(SD) = √ {∑(x – ‾x ) 2 / n-1}
Where, x = list of numbers for which standard deviation is to be calculated, ‾x = average of all the numbers, n = total numbers in the list
Standard deviation is used as a probability measure also. The standard deviation of any random variable in probability distribution can be expressed as:
σ = √ { ∫ (x-µ)2 p(x) dx}
Where, p(x) = probability density function, µ = ∫ x p(x) dx, definite integrals ranging from x over X
Standard deviation is widely used as a statistical measure. Main uses of standard deviation are as follows:
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This glossary post was last updated: 22nd November, 2021 | 0 Views.