The standard deviation of a stock’s return is a measure of its:Group of answer choicesexpected future returncorrelationsystematic risktotal risk
Question
The standard deviation of a stock’s return is a measure of its:Group of answer choicesexpected future returncorrelationsystematic risktotal risk
Solution
The standard deviation of a stock’s return is a measure of its total risk.
Here's why:
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Standard deviation is a statistical measure that represents the dispersion or variation in a set of values. In finance, it is used to measure the volatility or risk associated with a particular investment.
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When applied to stock returns, the standard deviation measures how much the returns can deviate from the average return. A higher standard deviation indicates a higher degree of risk because the returns can vary widely from the average return.
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Therefore, the standard deviation of a stock's return is not a measure of its expected future return, correlation, or systematic risk. Instead, it measures the total risk, which includes both systematic (market) risk and unsystematic (company-specific) risk.
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