What Is Variance?

Variance is a statistical measure that represents the spread or dispersion of a set of data points around their mean (average). It quantifies how far each data point in the set is from the mean and, consequently, from every other data point in the set. In finance, variance is often used as a measure of risk or volatility, although it is less commonly used than its square root, the standard deviation.

Usage: Variance is used in various fields, including statistics, finance, and engineering, to quantify variability or dispersion. In finance, it serves as a measure of an asset’s risk. However, standard deviation is more commonly used for this purpose because it is in the same unit as the data, making it more interpretable.

Variance is the square of the standard deviation, and both are used to measure the volatility or risk associated with a financial asset. However, standard deviation is generally preferred in practical applications because it is in the same unit as the original data points.

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