| Main Entry: | coefficient of variation |
| Part of Speech: | n |
| Definition: | a statistical measure of investment risk in which risk is defined as the standard deviation per unit of expected return; the ratio of standard deviation to the mean |
| Example: | There is an equivalent definition for the coefficient of variation of a population, which is based on the expected value and the standard deviation of a random variable. |
Coefficient of Variation - CV
A statistical measure of the dispersion of data points in a data series around the mean. It is calculated as follows:
As such, the CV represents the ratio of the standard deviation to the mean, and is therefore a useful statistic to compare the degree of variation from one data series to another, even if the means are drastically different from one another.
Investopedia Commentary
In the investing world, the coefficient of variation is useful to compare the standard deviation of an investment's returns over time to the investment's average, or expected return, as it allows you to determine how much volatility (risk) you are in comparison to the amount of return you can expect from your investment. In simple terminology, the lower the ratio of standard deviation to mean return, the better your risk-return tradeoff.
Note that if the expected return in the denominator of the calculation is negative or zero, the ratio will not make sense.
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See also: Dispersion, Expected Return, Mean, Risk-Return Tradeoff, Standard Deviation, Variance
Also spelled: variation coefficient, coefficient of variance, variance coefficient, scaled variation, Relative Standard Deviation, dispersion around mean, mean dispersionCV
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