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Standard Deviation
June 07 , 2012

Volatility or Standard Deviation is one of the standard statistical ways to measure risk. Say you want to know a risk metric for shares of Infosys. One way to do this is to measure the standard deviation of its daily returns. For this, you tabulate its daily closing share prices for a long enough time horizon (say three years). Then you calculate daily return:

Then you can use a simple Excel spreadsheet formula to calculate standard deviation: Stdev. You need to select the entire column of daily returns as arguments to this formula, and express the result as a percentage. In statistics, this variable is called σ (pronounced as sigma).

Volatility is simply the square of the standard deviation.

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