What is a standard deviation of revenue?

Standard deviation of revenues is the way of using statistical principles to estimate the level of volatility of shares and other investments and therefore the risk associated with the purchase. The principle is based on the idea of ​​the bell curve, where the central peak of the curve is the average or expected average percentage of value, which most likely returns to the investor in a given period. After a normal distribution curve, as one gets further and further from the average expected return, the standard deviation of profits or loss caused by investment increases.

In most male and natural systems, bell curves are the division of the probability of real results in situations that include a risk. One standard deviation from the average represents 34.1% of the actual results above or below what the expected value is, two standard deviapotoks away represent another 13.6% of actual results and three stAndard deviations from the average represent another 2.1% of results. In fact, this means that if the investment does not return the expected average amount, about 68% of the time will differ to a higher or lower level by one standard deviation point and 96% of the time will deviate by two points. Almost 100% of the time differs by three points from the diameter, and in addition, the growth of the level of loss or profit for investment becomes extremely rare.

The probability therefore predicts that the return on investment is much more likely to be close to the average expected return than further from it. Despite volatility of any investment, if a standard deviation of revenue follows, 50% of the time, it will return the expected value. Even more likely, 68% of the time will be the expected value within one deviation, and 96% of the time will be up to two points from the expected value. Calculation of revenue is the process of drawing all these variations on the bell curve and the more they are far from the average, the higher the scattering or volatility of the investment.

Attempt to visualize this process with actual numbers for standard yield deviation can be done by any percentage of return. An example would be investment in stocks with an expected average return rate of 10% with a standard deviation of 20%. If the shares follow the normal probability distribution curve, it means that 50% of the time will actually return this stock 10% of the yield. However, it is more likely that at 68% of the time, shares can be expected to lose 20% of this return and return 8%, or gain another 20% return value and return the actual rate of 12%. Even more likely overall is that 96% of the time can lose stock or gain 40% of ITS returns the value for two points of deviations, which means that it would return somewhere between 6% and 14%.

The higher the standard deviation of revenues, the more shares are both to increase positive profits and to increase losses, so a standard deviation of 20% yields would be a much greater scattering than one in 5%. As the scattering moves awayFurther from the center of the bell curve, it is increasingly less likely to occur; At the same time, all possible results are charged. This means that in three standard deviations, almost any possible situation in the real world is brought to 99.7%, but only 2.1% of the time will make a real return on investment, which gives three deviations from the average, which would be a return of somewhere around 4% or 16%.