disscuss one of the financial analyses thay are available to be perfomed by the financial managrr...

disscuss one of the financial analyses thay are available to be perfomed by the financial managrr in order to determine risk of investment. what is it, how is it used, what does it determine ?

Expert Solution

Standard Deviation

Standard Deviation is the financial analysis done by the managers before making an investment to determine the amount of risk involved in it. In each and every investment, there is risk. Risk is the difference of expected return and actual return. To avoid high risk and loss of money, managers do certain analysis.

Standard Deviation calculates the dispersion of data from its expected value and the standard deviation is used to make an investment decision to measure the historical volatility associated with an investment related to its annual rate of return.

By doing the standard deviation, manager can understand that how much the current return is deviating from the expected historical normal return. If the standard deviation is high for a stock,then it indicates that stock is highly volatile and high risk is connected with such stocks.

So when standard deviation of a stock is high then it is considered as a highly volatile and risky to invest in it.

jeff jeffy answered 2 years ago

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