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A statistical measure of the dispersion of data points around the mean, used in finance to quantify the volatility of investment returns.
In investing, a higher standard deviation indicates greater volatility and, by extension, greater risk. If a fund has an average annual return of 10% and a standard deviation of 15%, roughly 68% of the time (one standard deviation) its returns will fall between -5% and +25%. Two standard deviations (95% of occurrences) puts the range between -20% and +40%. The S&P 500 has a historical standard deviation of about 15-16% annually. Standard deviation is the denominator in the Sharpe ratio and is the primary measure of risk in Modern Portfolio Theory.