Traders and investors use variance to determine the optimal position size for a trade and to diversify their portfolios to manage risk.High variance indicates higher uncertainty and risk associated with the investment, while low variance indicates less risk.Variance measures the degree of dispersion of returns around the mean return of a security or portfolio.Investors and traders use variance ( volatility) to estimate the risk of an investment.Ī higher variance means there is more uncertainty and risk associated with the investment, while a lower variance indicates less risk. N other words, variance indicates how much the returns of a security or portfolio deviate from its average return. Variance plays an important role in trading and investing as it measures the degree of dispersion of returns around the mean return. Is variance the same thing as volatility?.
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