Coefficient of Variation

Coefficient of Variation

A measure of investment risk that defines risk as the standard deviation per unit of expected return.

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Coefficient of Variation

In statistics, the ratio of the standard deviation of a series of data points to the expected return. In investing, the coefficient of variation is used to measure the volatility (represented by the standard deviation) to the expected return on an investment. A lower coefficient of variation indicates a higher expected return with less risk. See also: Beta.

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Coefficient of Variation (CV)

What Does Coefficient of Variation (CV) Mean? A statistical measure of the dispersion of data points in a data series around the mean.It is calculated as follows:

The coefficient of variation represents the ratio of the standard deviation to the mean; it is a useful statistic for comparing the degree of variation from one data series to another even if the means are drastically different from each other.

Investopedia explains Coefficient of Variation (CV)

The coefficient of variation allows investors to determine how much volatility (risk) they are assuming in relation to the amount of expected return from an investment; the lower the ratio of standard deviation to the mean return is, the better the risk-return trade-off is. Note that if the expected return in the denominator of the calculation is negative or zero, the ratio will not make sense.

Related Terms:
• Beta
• Expected Return
• Risk-Return Trade-Off
• Standard Deviation
• Volatility