What is the connection between the expected return and the standard deviation?

The expected return and standard deviation are linked in the world of finance, as the high standard deviation will reduce the likelihood that the investor will actually receive the expected return. The expected yield is measured as the yield average for years. On the other hand, the standard deviation shows to what extent the yields differed from the expected return during the same period of time. Investors must be aware of the expected return and standard deviations in deciding on their safety selections, as they have to choose whether or not they will strive for high returns if the risk of these revenues is appropriate.

The use of the date of the expected return on the stock market is a bit of an incorrect name, because the stock prices are unstable and in the worst case unevenly unpredictable. Some investors could look for consistency for a certain period of time. Others could wish to go for great revenues at the expense of exposing themselves, especially the tiles of the tiles. The risk tolerance is to the riskSettlement for how investors see the connection between the expected return and the standard deviation.

It is important to understand what is meant by the expected return and a standard deviation before it can be examined. The expected return of the stock is what should be based on its revenues from previous years. On the other hand, a standard deviation is a measurement of how much this shares have lost from the expected return over time. As a standard deviation increases, it may also be possible that shares will not correspond to the expected return.

If you want to show how the expected return and standard deviation are interconnected, consider an example of two shares that each of them existed for three years and each of them has an expected yield of 15 percent. Stocks and returned 14 percent, 15 percent and 16 percent in three years, while shares B returned 10 percent, 15 percent and 20 percent in the same three years. While the average yield for both was15 percent, shares B have deviated much more since this return than stocks A.

This example can be said that shares B is much less likely to meet its expected return on the basis of previous performance. If the investor wants an expected return, which is closely 15 percent at a low risk, he should choose shares A. On the contrary, an investor with a higher risk tolerance could wish to choose shares and hope that timing is in a positive direction for a major deviation. How much risk that the investor would like is the final determinor in how the relative importance of the expected return and standard deviations considers.