Standard deviation is the most familiar measure of volatility, but it treats upside and downside variability symmetrically. A return that is far above the mean increases standard deviation just as much as a return that is far below the mean. That treatment is mathematically useful, but it is not always aligned with how investors experience risk.<\/p>\n\n\n\n
Many investors are especially concerned with downside risk<\/strong>. A pension fund may care about returns falling below the rate needed to meet benefit obligations. A foundation may care about returns falling below its spending rate. A risk manager may care more about shortfalls below a benchmark than about unusually strong positive returns. In such cases, semi-deviation and target downside deviation can be more informative than ordinary standard deviation.<\/p>\n\n\n\n The coefficient of variation answers a different question. It compares dispersion with the mean. This makes it useful when two investments have different average returns and the analyst wants to understand risk per unit of return<\/strong>.<\/p>\n\n\n\n