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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Risk and Return

In the context of measuring investment risk, which statistical measure is computed as the square root of the variance of a security's periodic returns?

Standard deviation is the square root of variance of returns. It expresses total dispersion of returns around the mean in the same units as the returns, and is the common measure of total risk, unlike beta or covariance which capture relationships with the market.

  1. AStandard deviationCorrect
  2. BBeta
  3. CCovariance
  4. DCoefficient of determination

Explanation

Variance measures squared dispersion of returns around the mean. Taking its square root returns the figure to the same units as returns, which is the standard deviation. Beta and covariance measure co-movement, not total dispersion.

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