NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Risk and Return
Which statement about standard deviation as a measure of risk is correct?
Standard deviation measures the dispersion of returns around their mean, treating upside and downside deviations alike. It is the square root of variance and is never negative. Sensitivity to market movements is measured by beta, not standard deviation.
- AIt measures only downside losses below the mean
- BIt measures dispersion of returns around the mean returnCorrect
- CIt measures sensitivity of a stock to market movements
- DIt is always negative for loss-making stocks
Explanation
Standard deviation is the square root of variance and captures how widely returns are spread around their mean, in both directions. Sensitivity to the market is beta, and standard deviation cannot be negative.
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