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

Which statement about the coefficient of variation (standard deviation divided by mean return) is correct?

The coefficient of variation measures total risk per unit of expected return, calculated as standard deviation divided by mean return. A lower value is preferable because it means less risk is taken for each unit of return. It is not beta and does not isolate systematic risk.

  1. AA higher value indicates less risk per unit of return
  2. BIt measures only systematic risk
  3. CIt measures total risk per unit of expected return, so a lower value is preferableCorrect
  4. DIt is the same as beta

Explanation

Coefficient of variation is standard deviation per unit of mean return, so a lower figure means less risk for each unit of return. It uses total risk, not just systematic risk, and it is different from beta.

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