Financial sector

Standard Deviation vs. Variance: An Overview
Standard deviation and variance are two basic mathematical concepts that have an important place in various parts of the financial sector, from accounting to economics to investing. Both measure the variability of figures within a data set using the mean of a certain group of numbers. They are important to help determine volatility and the distribution of returns. But there are inherent differences between the two. While standard deviation measures the square root of the variance, the variance is the average of each point from the mean.
KEY TAKEAWAYS

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  Standard deviation and variance are two key measures commonly used in the financial sector.
  
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  Standard deviation is the spread of a group of numbers from the mean.
  
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  The variance measures the average degree to which each point differs from the mean.
  
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  While standard deviation is the square root of the variance, variance is the average of all data points within a group.
  
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  The two concepts are useful and significant for traders, who use them to measure market volatility.
  

Standard Deviation
Standard deviation is a statistical measurement that looks at how far a group of numbers is from the mean. Put simply, standard deviation measures how far apart numbers are in a data set.
This metric is calculated as the square root of the variance. This means you have to figure out the variation between each data point relative to the mean. Therefore, the calculation of variance uses squares because it weighs outliers more heavily than data that appears closer to the mean. This calculation also prevents differences above the mean from canceling out those below, which would result in a variance of zero.
But how do you interpret standard deviation once you figure it out? If the points are further from the mean, there is a higher deviation within the data. But if they are closer to the mean, there is a lower deviation. So the more spread out the group of numbers are, the higher the standard deviation.
 
As an investor, make sure you have a firm grasp on how to calculate and interpret standard deviation and variance so you can create an effective trading strategy.
Variance
A variance is the average of the squared differences from the mean. To figure out the variance, calculate the difference between each point within the data set and the mean. Once you figure that out, square and average the results.
For example, if a group of numbers ranges from one to 10, you get a mean of 5.5. If you square the differences between each number and the mean and find their sum, the result is 82.5. To figure out the variance:

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  Divide the sum, 82.5, by N-1, which is the sample size (in this case 10) minus 1.
  
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  The result is a variance of 82.5/9 = 9.17.
  

Note that the standard deviation is the square root of the variance so the standard deviation is about 3.03.