NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
Standard deviation of a portfolio's returns is used in investment analysis primarily as a measure of which of the following?
Standard deviation measures the total risk or volatility of a portfolio's returns. It shows how widely returns are dispersed around their average, covering both systematic and unsystematic risk. It does not indicate expected return, liquidity or inflation protection.
- ATotal risk or volatility of returnsCorrect
- BExpected return of the portfolio
- CInflation protection of the portfolio
- DLiquidity of the portfolio
Explanation
Standard deviation measures how widely returns are dispersed around their mean, so it captures total risk, covering both systematic and unsystematic components. It does not measure the expected return, inflation protection or liquidity.
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