What is Standard Deviation?

Standard deviation is a measure of how far each observed value in a data set is from the mean value. This measurement indicates how spread out the data is within a data set, and how far specific data is from the general norm. Within the context of investing, standard deviation can be used to compute a current rate of return on an investment relative to its historical mean in order to determine the investment's historical volatility. In general, volatile investments are characterized by a high standard deviation, while more stable investments usually have low standard deviations.